UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   Form 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2001

                         Commission File Number 0-16587

                          Summit Financial Group, Inc.
             (Exact name of registrant as specified in its charter)

              West Virginia                            55-0672148
      (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)               Identification No.)

            223 N. Main Street
        Moorefield, West Virginia                        26836
   (Address of principal executive offices)           (Zip Code)

                                 (304) 538-1000
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                                     Common
                                (Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K [ss.229.405 of this chapter] is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. |X|

The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 20,2002, was approximately $46,350,000. The number of shares
of the Registrant's Common Stock outstanding on March 20, 2002, was 1,754,310.

                       Documents Incorporated by Reference

The following lists the documents which are incorporated by reference in the
Annual Report Form 10-K, and the Parts and Items of the Form 10-K into which the
documents are incorporated.
                                                 Part of Form 10-K into which
          Document                                  document is incorporated
Portions of the Registrant's                 Part II - Items 5, 6, 7, 7A, and 8
2001 Annual Report to Shareholders

Portions of the Registrant's Proxy           Part III - Items 10, 11, 12 and 13
Statementfor the Annual Meeting of
Shareholders to be held May 16, 2002

                           SUMMIT FINANCIAL GROUP, INC

                                 Form 10-K Index

                                                                            Page
PART I.

Item 1.  Business............................................................3-8

Item 2.  Properties............................................................9

Item 3.  Legal Proceedings.....................................................9

Item 4.  Submission of Matters to a Vote of Shareholders.......................9

PART II.

Item 5.  Market for the Registrant's Common Stock and
         Related Shareholder Matters..........................................10

Item 6.  Selected Financial Data..............................................10

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations and Related Statistical Disclosures............10

Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........10

Item 8.  Financial Statements and Supplementary Data..........................10

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.................................................10

PART III.

Item 10. Directors and Executive Officers of the Registrant...................11

Item 11. Executive Compensation...............................................11

Item 12. Security Ownership of Certain Beneficial
         Owners and Management................................................11

Item 13. Certain Relationships and Related Transactions.......................11

PART IV.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...12-13

SIGNATURES ................................................................14-15

                                       2

PART I.

Item 1.  Business

General

Summit Financial Group, Inc. ("Company" or "Summit") is a $592 million financial
holding company headquartered in Moorefield, West Virginia that provides
commercial and retail banking services primarily in the Eastern Panhandle and
South Central regions of West Virginia and the Northwestern region of Virginia.
Summit provides these services through its four bank subsidiaries: South Branch
Valley National Bank ("South Branch"), Capital State Bank, Inc. (Capital
State"), Shenandoah Valley National Bank ("Shenandoah") and Potomac Valley Bank
("Potomac") (collectively, the "Bank Subsidiaries"). Summit changed its name
from South Branch Valley Bancorp, Inc. effective December 30, 1999.

The Company was incorporated under the laws of the State of West Virginia in
1987, and became the parent bank holding company of South Branch, a nationally
chartered banking association headquartered in Moorefield, West Virginia on
December 31,1987. In early 1997, the Company purchased approximately 40% of the
outstanding common shares of Capital State, a West Virginia chartered bank
headquartered in Charleston, West Virginia, for $5.2 million. On March 31, 1998,
Summit acquired the remaining 60% of its outstanding common shares for 366,930
shares of Summit common stock valued at $7.9 million. Effective April 22, 1999,
Capital State purchased three branch banking facilities located in Greenbrier
County, West Virginia. The transaction included the Branches' facilities and
associated loan and deposit accounts. Total deposits assumed approximated $47.4
million and total loans acquired approximated $8.9 million. On May 17, 1999,
Shenandoah, a newly organized, nationally chartered bank subsidiary of Summit,
opened for business in Winchester, Virginia. Shenandoah was initially
capitalized with $4 million. On December 30, 1999, Summit merged with Potomac, a
$94 million asset, West Virginia chartered bank headquartered in Petersburg,
West Virginia. Summit issued 580,220 shares of common stock to the shareholders
of Potomac based upon an exchange ratio of 6.8136 shares of Summit common stock
for each outstanding share of Potomac common stock. On January 18, 2002, South
Branch and Potomac merged to form Summit Community Bank, a West Virginia banking
association.

Commercial and Retail Banking

Summit provides a wide range of commercial and retail banking services,
including demand, savings and time deposits; commercial, real estate and
consumer loans; merchant credit card services; letters of credit; and cash
management services. The deposits of the Bank Subsidiaries are insured by the
Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC").

In order to compete with other financial service providers, the Company
principally relies upon personal relationships established by officers,
directors and employees with its customers, and specialized services tailored to
meet its customer's needs. The Company and the Bank Subsidiaries have maintained
a strong community orientation by, among other things, supporting the active
participation of staff members in local charitable, civic, school, religious and
community development activities. Summit also has a marketing program that
primarily utilizes local radio and newspapers to advertise.

The primary lending focus of the Company is providing  commercial loans to local
businesses with annual sales ranging from $300,000 to $30 million, and providing
owner-occupied real estate loans to individuals.  Typically,  Summit's customers
have financing  requirements  between $50,000 and $1,000,000.  Summit  typically
does not seek loans of more than $4 million,  but will consider  larger  lending
relationships  which involve  exceptional  levels of credit  quality.  Under its
business  banking  strategy,  the Company  focuses on a broad line of  financial
products and services to small and medium-sized  businesses through full service
banking  offices.  Each Bank  Subsidiary  has senior  management  with extensive
lending experience.  These managers exercise  substantial  authority over credit
and pricing  decisions,  subject to loan committee  approval for larger credits.
This decentralized  management  approach,  coupled with continuity of service by
the same staff  members,  enables  the Bank  Subsidiaries  to develop  long-term
customer  relationships,  maintain high quality  service and respond  quickly to
customer  needs.  The Company  believes that its emphasis on local  relationship
banking, together with a conservative approach to lending, are important factors
in the success and growth of the Company.

The Company centralizes operational and support functions that are transparent
to customers in order to achieve consistency and cost efficiencies in the
delivery of products and services by each banking office. The central office
provides services such as data processing, bookkeeping, accounting, treasury
management, loan administration, loan review, compliance, risk management and
internal auditing to enhance their delivery of quality service. Summit also
provides overall direction in the areas of credit policy and administration,
strategic planning, marketing, investment portfolio management and other
financial and administrative services. The banking offices work closely with the
Company to develop new products and services needed by their customers and to
introduce enhancements to existing products and services.

                                       3

Supervision and Regulation

General

Summit, as a financial holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956 ("BHCA"), and is registered pursuant to its
provisions. As a registered financial holding company, Summit is subject to the
reporting requirements of the Federal Reserve Board of Governors ("FRB"), and is
subject to examination by the FRB.

The BHCA prohibits the acquisition by a financial holding company of direct or
indirect ownership of more than five percent of the voting shares of any bank
within the United States without prior approval of the FRB. With certain
exceptions, a financial holding company is prohibited from acquiring direct or
indirect ownership or control or more than five percent of the voting shares of
any company which is not a bank, and from engaging directly or indirectly in
business unrelated to the business of banking or managing or controlling banks.

The BHCA permits Summit to purchase or redeem its own securities. However,
Regulation Y provides that prior notice must be given to the FRB if the gross
consideration for such purchase or consideration, when aggregated with the net
consideration paid by the company for all such purchases or redemptions during
the preceding 12 months is equal to 10 percent or more of the company's
consolidated net worth. Prior notice is not required if (i) both before and
immediately after the redemption, the financial holding company is
well-capitalized; (ii) the financial holding company is well-managed and (iii)
the financial holding company is not the subject of any unresolved supervisory
issues.

The FRB, in its Regulation Y, permits financial holding companies to engage in
non-banking activities closely related to banking or managing or controlling
banks. Approval of the FRB is necessary to engage in these activities or to make
acquisitions of corporations engaging in these activities as the FRB determines
whether these acquisitions or activities are in the public interest. In
addition, by order, and on a case by case basis, the FRB may approve other
non-banking activities.

As a financial holding company doing business in West Virginia, Summit is also
subject to regulation by the West Virginia Board of Banking and Financial
Institutions and must submit annual reports to the West Virginia Division of
Banking.

Federal law restricts subsidiary banks of a financial holding company from
making certain extensions of credit to the parent financial holding company or
to any of its subsidiaries, from investing in the holding company stock, and
limits the ability of a subsidiary bank to take its parent company stock as
collateral for the loans of any borrower. Additionally, federal law prohibits a
financial holding company and its subsidiaries from engaging in certain tie-in
arrangements in conjunction with the extension of credit or furnishing of
services.

The operations of South Branch and Shenandoah, as national banking associations,
are subject to federal  statutes and regulations  which apply to national banks,
and are primarily  regulated by the  Comptroller of the Currency.  Capital State
and Potomac are subject to similar West Virginia  statutes and regulations,  and
are  primarily  regulated  by the West  Virginia  Division of Banking.  The Bank
Subsidiaries  are also  subject to  regulations  promulgated  by the FRB and the
FDIC. As members of the FDIC, the deposits of the Bank  Subsidiaries are insured
as  required by federal  law.  Bank  regulatory  authorities  regularly  examine
revenues,  loans,  investments,  management practices,  and other aspects of the
Bank  Subsidiaries.  These  examinations  are  conducted  primarily  to  protect
depositors and not shareholders. In addition to these regular examinations,  the
Bank  Subsidiaries  must furnish to  regulatory  authorities  quarterly  reports
containing full and accurate statements of their affairs.

Permitted Non-banking Activities

The FRB permits, within prescribed limits, financial holding companies to engage
in non-banking activities closely related to banking or to managing or
controlling banks. Such activities are not limited to the state of West
Virginia. Some examples of non-banking activities which presently may be
performed by a financial holding company are: making or acquiring, for its own
account or the account of others, loans and other extensions of credit;
operating as an industrial bank, or industrial loan company, in the manner
authorized by state law; servicing loans and other extensions of credit;
performing or carrying on any one or more of the functions or activities that
may be performed or carried on by a trust company in the manner authorized by
federal or state law; acting as an investment or financial advisor; leasing real
or personal property; making equity or debt investments in corporations or
projects designed primarily to promote community welfare, such as the economic
rehabilitation and the development of low income areas; providing bookkeeping
services or financially oriented data processing services for the holding
company and its subsidiaries; acting as an insurance agent or a broker, to a
limited extent, in relation to insurance directly related to an extension of
credit; acting as an underwriter for credit life insurance which is directly
related to extensions of credit by the financial holding company system;
providing courier services for certain financial documents; providing management
consulting advice to nonaffiliated banks; selling retail money orders having a
face value of not more than $1,000,

                                       4

traveler's checks and U. S. savings bonds; performing appraisals of real estate;
arranging commercial real estate equity financing under certain limited
circumstances; providing securities brokerage services related to securities
credit activities; underwriting and dealing in government obligations and money
market instruments; providing foreign exchange advisory and transactional
services; and acting under certain circumstances, as futures commission merchant
for nonaffiliated persons in the execution and clearance on major commodity
exchanges of futures contracts and options.

Credit and Monetary Policies and Related Matters

The Bank Subsidiaries are affected by the fiscal and monetary policies of the
federal government and its agencies, including the FRB. An important function of
these policies is to curb inflation and control recessions through control of
the supply of money and credit. The operations of the Bank Subsidiaries are
affected by the policies of government regulatory authorities, including the FRB
which regulates money and credit conditions through open market operations in
United States Government and Federal agency securities, adjustments in the
discount rate on member bank borrowings, and requirements against deposits and
regulation of interest rates payable by member banks on time and savings
deposits. These policies have a significant influence on the growth and
distribution of loans, investments and deposits, and interest rates charged on
loans, or paid for time and savings deposits, as well as yields on investments.
The FRB has had a significant effect on the operating results of commercial
banks in the past and is expected to continue to do so in the future. Future
policies of the FRB and other authorities and their effect on future earnings
cannot be predicted.

The FRB has a policy that a financial holding company is expected to act as a
source of financial and managerial strength to each of its subsidiary banks and
to commit resources to support each such subsidiary bank. Under the source of
strength doctrine, the FRB may require a financial holding company to contribute
capital to a troubled subsidiary bank, and may charge the financial holding
company with engaging in unsafe and unsound practices for failure to commit
resources to such a subsidiary bank. This capital injection may be required at
times when Summit may not have the resources to provide it. Any capital loans by
a holding company to any of the subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary bank.
In addition, the Crime Control Act of 1990 provides that in the event of a
financial holding company's bankruptcy, any commitment by such holding company
to a Federal bank or thrift regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment.

In 1989, the United States Congress enacted the Financial Institutions Reform,
Recovery and Enforcement Act ("FIRREA"). Under FIRREA depository institutions
insured by the FDIC may now be liable for any losses incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution, or
(ii) any assistance provided by the FDIC to commonly controlled FDIC-insured
depository institution in danger of default. "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured bank or subsidiary of Summit causes a
loss to the FDIC, other bank subsidiaries of Summit could be liable to the FDIC
for the amount of such loss.

Under federal law, the OCC may order the pro rata assessment of shareholders of
a national bank whose capital stock has become impaired, by losses or otherwise,
to relieve a deficiency in such national bank's capital stock. This statute also
provides for the enforcement of any such pro rata assessment of shareholders of
such national bank to cover such impairment of capital stock by sale, to the
extent necessary, of the capital stock of any assessed shareholder failing to
pay the assessment. Similarly, the laws of certain states provide for such
assessment and sale with respect to the subsidiary banks chartered by such
states. Summit, as the sole stockholder of its subsidiary banks, is subject to
such provisions.

Capital Requirements

As a financial holding company Summit is subject to FRB risk-based capital
guidelines. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations, takes off-balance sheet exposures into
explicit account in assessing capital adequacy, and minimizes disincentives to
holding liquid, low-risk assets. Under the guidelines and related policies,
financial holding companies must maintain capital sufficient to meet both a
risk-based asset ratio test and leverage ratio test on a consolidated basis. The
risk-based ratio is determined by allocating assets and specified off-balance
sheet commitments into four weighted categories, with higher levels of capital
being required for categories perceived as representing greater risk. The Bank
Subsidiaries are subject to substantially similar capital requirements adopted
by adopted by its applicable regulatory agencies.

                                       5

Generally, under the applicable guidelines, a financial institution's capital is
divided into two tiers. "Tier 1", or core capital, includes common equity,
noncumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangibles. "Tier 2", or supplementary capital, includes,
among other things, cumulative and limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan losses, subject to certain limitations, less required
deductions. "Total capital" is the sum of Tier 1 and Tier 2 capital. Financial
holding companies are subject to substantially identical requirements, except
that cumulative perpetual preferred stock can constitute up to 25% of a
financial holding company's Tier 1 capital.

Financial holding companies are required to maintain a risk-based ratio of 8%,
of which 4% must be Tier 1 capital. The appropriate regulatory authority may set
higher capital requirements when an institution's particular circumstances
warrant. For purposes of the leverage ratio, the numerator is defined as Tier 1
capital and the denominator is defined as adjusted total assets (as specified in
the guidelines). The guidelines provide for a minimum leverage ratio of 3% for
financial holding companies that meet certain specified criteria, including
excellent asset quality, high liquidity, low interest rate exposure and the
highest regulatory rating. Financial holding companies not meeting these
criteria are required to maintain a leverage ratio which exceeds 3% by a cushion
of at least 1 to 2 percent.

The guidelines also provide that financial holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the FRB's guidelines
indicate that the FRB will continue to consider a "tangible Tier 1 leverage
ratio" in evaluating proposals for expansion or new activities. The tangible
Tier 1 leverage ratio is the ratio of an institution's Tier 1 capital, less all
intangibles, to total assets, less all intangibles.

On August 2, 1995, the FRB and other banking agencies issued their final rule to
implement the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. This final rule amends
the capital standards to specify that the banking agencies will include, in
their evaluations of a bank's capital adequacy, an assessment of the exposure to
declines in the economic value of the bank's capital due to changes in interest
rates.

Failure to meet applicable capital guidelines could subject the financial
holding company to a variety of enforcement remedies available to the federal
regulatory authorities, including limitations on the ability to pay dividends,
the issuance by the regulatory authority of a capital directive to increase
capital and termination of deposit insurance by the FDIC, as well as to the
measures described under the "Federal Deposit Insurance Corporation Improvement
Act of 1991" as applicable to undercapitalized institutions.

The regulatory capital ratios of Summit and each of the Bank Subsidiaries as of
year end 2001 are set forth in the table in Note 13 of the notes of the
accompanying consolidated financial statements.

Federal Deposit Insurance Corporation Improvement Act of 1991

In December, 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), which substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Corporation
Act and made revisions to several other banking statues.

FDICIA establishes a new regulatory scheme, which ties the level of supervisory
intervention by bank regulatory authorities primarily to a depository
institution's capital category. Among other things, FDICIA authorizes regulatory
authorities to take "prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.

By regulation, an institution is "well-capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater and a Tier 1 leverage ratio of 5% or greater and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. Each of the Bank Subsidiaries were "well
capitalized" institutions as of December 31, 2001. As well-capitalized
institutions, they are permitted to engage in a wider range of banking
activities, including among other things, the accepting of "brokered deposits,"
and the offering of interest rates on deposits higher than the prevailing rate
in their respective markets.

Another requirement of FDICIA is that Federal banking agencies must prescribe
regulations relating to various operational areas of banks and financial holding
companies. These include standards for internal audit systems, loan
documentation, information systems, internal controls, credit underwriting,
interest rate exposure, asset growth, compensation, a maximum ratio of
classified assets to capital, minimum earnings sufficient to absorb losses, a
minimum ratio of market value to book value for publicly traded shares and such
other standards as the agency deems appropriate.

                                       6

Reigle-Neal Interstate Banking Bill

In 1994, Congress passed the Reigle-Neal Interstate Banking Bill (the
"Interstate Bill"). The Interstate Bill permits certain interstate banking
activities through a holding company structure, effective September 30, 1995. It
permits interstate branching by merger effective June 1, 1997 unless states
"opt-in" sooner, or "opt-out" before that date. States may elect to permit de
novo branching by specific legislative election. In March, 1996, West Virginia
adopted changes to its banking laws so as to permit interstate banking and
branching to the fullest extent permitted by Interstate Bill. The Interstate
Bill permits consolidation of banking institutions across state lines and,
perhaps, de novo entry.

Community Reinvestment Act

Financial  holding  companies and their subsidiary banks are also subject to the
provisions of the Community Reinvestment Act of 1977 ("CRA"). Under the CRA, the
Federal Reserve Board (or other appropriate bank regulatory agency) is required,
in connection  with its  examination  of a bank, to assess such bank's record in
meeting the credit needs of the communities  served by that bank,  including low
and moderate income  neighborhoods.  Further such assessment is also required of
any financial  holding company which has applied to (i) charter a national bank,
(ii) obtain deposit insurance coverage for a newly chartered institution,  (iii)
establish  a new branch  office  that will  accept  deposits,  (iv)  relocate an
office,  or (v) merge or  consolidate  with, or acquire the assets or assume the
liabilities of a  federally-regulated  financial  institution.  In the case of a
financial  holding  company  applying  for  approval  to acquire a bank or other
financial holding company,  the FRB will assess the record of each subsidiary of
the applicant  financial holding company,  and such records may be the basis for
denying the  application or imposing  conditions in connection  with approval of
the application.  On December 8, 1993, the Federal  regulators jointly announced
proposed  regulations  to simplify  enforcement of the CRA by  substituting  the
present  twelve   categories  with  three  assessment   categories  for  use  in
calculating CRA ratings (the "December 1993 Proposal").  In response to comments
received by the  regulators  regarding the December 1993  Proposal,  the federal
bank  regulators  issued revised CRA proposed  regulations on September 26, 1994
(the "Revised CRA Proposal"). The Revised CRA Proposal, compared to the December
1993 Proposal,  essentially  broadens the scope of CRA performance  examinations
and more explicitly considers community  development  activities.  Moreover,  in
1994, the Department of Justice, became more actively involved in enforcing fair
lending laws.

In the most recent CRA examinations by the applicable bank regulatory
authorities, each of the Bank Subsidiaries were given "satisfactory" or better
CRA ratings.

Graham-Leach-Bliley Act of 1999

The enactment of the Graham-Leach-Bliley Act of 1999 (the "GLB Act") represents
a pivotal point in the history of the financial services industry. The GLB Act
sweeps away large parts of a regulatory framework that had its origins in the
Depression Era of the 1930s. Effective March 11, 2000, new opportunities were
available for banks, other depository institutions, insurance companies and
securities firms to enter into combinations that permit a single financial
services organization to offer customers a more complete array of financial
products and services. The GLB Act provides a new regulatory framework for
regulation through the financial holding company, which have as its umbrella
regulator the FRB. Functional regulation of the financial holding company's
separately regulated subsidiaries are conducted by their primary functional
regulator. The GLB Act makes satisfactory or above Community Reinvestment Act
compliance for insured depository institutions and their financial holding
companies necessary in order for them to engage in new financial activities. The
GLB Act provides a Federal right to privacy of non-public personal information
of individual customers.

Deposit Acquisition Limitation

Under West Virginia banking law, an acquisition or merger is not permitted if
the resulting depository institution or its holding company, including any
depository institutions affiliated therewith, would assume additional deposits
to cause it to control deposits in the State of West Virginia in excess of
twenty five percent (25%) of such total amount of all deposits held by insured
depository institutions in West Virginia. This limitation may be waived by the
Commissioner of Banking for good cause shown.

                                       7

Consumer Laws and Regulations

In addition to the banking laws and regulations discussed above, the Bank
Subsidiaries are also subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. Among the more
prominent of such laws and regulations are the Truth in Lending Act, the Truth
in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds
Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, and the Fair Housing Act. These laws and regulations mandate certain
disclosure requirements and regulate the manner in which financial institutions
must deal with customers when taking deposits or making loans to such customers.
The Bank Subsidiaries must comply with the applicable provisions of these
consumer protection laws and regulations as part of their ongoing customer
relations.

Competition

The Company engages in highly competitive activities. Each activity and market
served involves competition with other banks and savings institutions, as well
as with non-banking and non-financial enterprises that offer financial products
and services that compete directly with the Company's product and service
offerings. The Company actively competes with other banks, mortgage companies
and other financial service companies in its efforts to obtain deposits and make
loans, in the scope and types of services offered, in interest rates paid on
time deposits and charged on loans, and in other aspects of banking.

In addition to competing with other banks and mortgage companies, the Company
competes with other financial institutions engaged in the business of making
loans or accepting deposits, such as savings and loan associations, credit
unions, industrial loan associations, insurance companies, small loan companies,
finance companies, real estate investment trusts, certain governmental agencies,
credit card organizations and other enterprises. In recent years, competition
for money market accounts from securities brokers has also intensified.
Additional competition for deposits comes from government and private issues of
debt obligations and other investment alternatives for depositors such as money
market funds. Summit takes an aggressive competitive posture, and intends to
continue vigorously competing for its share of the market within its service
area by offering competitive rates and terms on both loans and deposits.

Employees

At March 15, 2002, Summit employed 166 full-time equivalent employees.

                                       8

Item 2.  Properties

Summit's principal executive office is located at 223 North Main Street,
Moorefield, West Virginia in a building owned by the Company. Additionally,
Summit's subsidiaries banks' headquarters and branch locations occupy offices
which are either owned or operated under long-term lease arrangements. At
December 31, 2001, Summit's subsidiary banks operated 11 banking offices as
follows:
                                                Number of Offices
                                         ------------------------------
Subsidiary / Office Location               Owned     Leased     Total
- -----------------------------------------------------------------------
South Branch Valley National Bank
      Moorefield, West Virginia               1         -         1
      Mathias, West Virginia                  1         -         1
      Franklin, West Virginia                 1         -         1
Capital State Bank, Inc.
      Charleston, West Virginia               2         -         2
      Rainelle, West Virginia                 1         -         1
      Rupert, West Virginia                   1         -         1
Shenandoah Valley National Bank
      Winchester, Virginia                    1         1         2
Potomac Valley Bank
      Petersburg, West Virginia               2         -         2

Management believes that the premises occupied by Summit and its subsidiaries
are well-located and suitably equipped to serve as financial services
facilities. See Note 7 of the accompanying consolidated financial statements for
additional disclosures related to the Company's properties and other fixed
assets.

Item 3.  Legal Proceedings

Summit is involved in various pending legal proceedings, all of which are
regarded by management as normal litigation incident to the business of banking
and are not expected to have a materially adverse effect on the business or
financial condition of the Company.

Item 4.  Submission of Matters to a Vote of Shareholders

No matters were submitted during the fourth quarter of 2001 to a vote of Company
shareholders.

                                       9

PART II.

Item 5.  Market for Registrant's Common Stock and Related Shareholder Matters

Information required by this item is set forth under the captions "COMMON STOCK
LISTING" and "COMMON STOCK DIVIDEND AND MARKET PRICE INFORMATION" on page 16 of
Summit's 2001 Annual Report, and is incorporated herein by reference.

Item 6.  Selected Financial Data

Information required by this item is set forth under the heading "SELECTED
FINANCIAL DATA" on page 2 of Financial Information 2001 included as a supplement
to Summit's 2001 Annual Report, and is incorporated herein by reference.

Item 7.  Management's  Discussion  and  Analysis of Financial  Condition  and
         Results of Operations and Related Statistical Disclosures

Information required by this item is set forth under the heading "MANAGEMENT'S
DISCUSSION AND ANALYSIS" on pages 3 through 11 of Financial Information 2001
included as a supplement to Summit's 2001 Annual Report, and is incorporated
herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Information required by this item is set forth under the caption "MARKET RISK
MANAGEMENT" on pages 10 through 11 of Financial Information 2001 included as a
supplement to Summit's 2001 Annual Report, and is incorporated herein by
reference.

Item 8.  Financial Statements and Supplementary Data

Information required by this item is set forth under the heading "QUARTERLY
FINANCIAL INFORMATION" on page 12, under the heading "REPORT OF INDEPENDENT
AUDITORS" on page 13, and under the headings "CONSOLIDATED FINANCIAL STATEMENTS"
and "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" on pages 14 through 35 of
Financial Information 2001 included as a supplement to Summit's 2001 Annual
Report, and is incorporated herein by reference.

Item 9.  Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure

There has been no Form 8-K filed within 24 months prior to the date of the most
recent financial statements reporting a change of accountants and/or reporting
disagreements on any matter of accounting principle or financial statement
disclosure.

                                       10

PART III.

Item 10.  Directors and Executive Officers

Information required by this item is set forth under the captions "Section 16(a)
Beneficial Ownership Reporting Compliance" on page 2, under the headings
"NOMINEES FOR DIRECTOR WHOSE TERMS EXPIRE IN 2005", "DIRECTORS WHOSE TERMS
EXPIRE IN 2004", and "DIRECTORS WHOSE TERMS EXPIRE IN 2003" on pages 6 through
8, and under the heading "EXECUTIVE OFFICERS" on page 11 of Summit's 2002 Proxy
Statement, and is incorporated herein by reference.

Item 11.  Executive Compensation

Information required by this item is set forth under the headings "EXECUTIVE
COMPENSATION", "EXECUTIVE COMPENSATION COMMITTEE REPORT", "Employment Agreements
and Change of Control Agreement", "Summit Financial Group, Inc. Plans", "STOCK
OPTION GRANTS IN 2001", "STOCK OPTION EXERCISES AND YEAR END VALUE TABLE" and
"SHAREHOLDER RETURN PERFORMANCE GRAPH" on pages 12 through 22, and under the
caption "Fees and Benefit Plans for Directors" on page 4 of Summit's 2002 Proxy
Statement, and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information required by this item is set forth under the caption "Security
Ownership of Directors and Officers" on page 5, under the headings "NOMINEES FOR
DIRECTOR WHOSE TERMS EXPIRE IN 2005", "DIRECTORS WHOSE TERMS EXPIRE IN 2004" and
"DIRECTORS WHOSE TERMS EXPIRE IN 2003" on pages 6 through 8, and under the
heading "EXECUTIVE OFFICERS" on page 11 of Summit's 2002 Proxy Statement, and is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

Information required by this item is set forth under the caption "Related
Transactions" on page 3 of Summit's 2002 Proxy Statement, and is incorporated
herein by reference.

                                       11

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

All financial statements and financial statement schedules required to be filed
by this Form or by Regulation S-X, which are applicable to the Registrant, have
been presented in the financial statements and notes thereto in Item 8 in
management's discussion and analysis of financial condition and results of
operation in Item 7 or elsewhere in this filing where appropriate. The listing
of exhibits follows:

A.       Exhibits
                                INDEX TO EXHIBITS
                                                                   Page(s) in
                                                                  Form 10-K or
Exhibit                                                          Prior Filing
Number                  Description                                Reference
- ------                  -----------                              -------------

 (3)     Articles of Incorporation and By-laws:
         (i)      Articles of Incorporation of Summit                  (a)
                  Financial Group, Inc. as last amended
                  on May 2, 2000
         (ii)     By-laws of Summit Financial Group,                   (b)
                  Inc. as last amended,
                  effective December 31, 1999

(10)     Material Contracts
         (i)      Agreement with H. Charles Maddy, III                 (c)
         (ii)     Agreement with Ronald F. Miller                      (d)
         (iii)    Agreement with C. David Robertson                    (e)
         (iv)     Agreement with Patrick N. Frye                       (f)
         (v)      1998 Officers Stock Option Plan                      (g)

(11)     Statement Re:  Computation of Earnings per Share

(13)     Portions of 2001 Annual Report to Shareholders
         incorporated by Reference into this Form 10-K

(21)     Subsidiaries of Registrant

(23)     Consent of Arnett & Foster, P.L.L.C.

     (a)  Incorporated by reference to Exhibit 3(i) of Summit  Financial  Group,
          Inc.'s filing on Form 10-Q dated June 30, 2000.

     (b)  Incorporated by reference to Exhibit 3(b) of Summit  Financial  Group,
          Inc.'s filing on Form 10-Q dated June 30,2000.

     (c)  Incorporated  by  reference  to  Exhibit  10 to  South  Branch  Valley
          Bancorp, Inc.'s filing on Form 10-KSB dated December 31, 1995.

     (d)  Incorporated  by  reference to Exhibit  10(ii) to South Branch  Valley
          Bancorp, Inc.'s filing on Form 10-KSB dated December 31, 1998.

     (e)  Incorporated  by  reference  to  Exhibit  10 to  South  Branch  Valley
          Bancorp, Inc.'s filing on Form 10-QSB dated June 30, 1999.

     (f)  Incorporated  by  reference to Exhibit  10(b) of South  Branch  Valley
          Bancorp, Inc.'s filing on Form S-4 dated October 13, 1999.

     (g)  Incorporated  by  reference  to  Exhibit  10 to  South  Branch  Valley
          Bancorp, Inc.'s filing on Form 10-QSB dated June 30, 1998.

                                       12

B.       Reports on Form 8-K

         No reports of Form 8-K were filed by Summit during the fourth quarter
         of the year ended December 31, 2001.

                                       13

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                SUMMIT FINANCIAL GROUP, INC.
                                                a West Virginia Corporation
                                                (registrant)

By: /s/ Oscar M. Bean    3/26/2002     By: /s/ H. Charles Maddy, III   3/26/2002
    -------------------------------    -----------------------------------------
      Oscar M. Bean         Date       H. Charles Maddy, III            Date
      Chairman of the Board            President & Chief Executive Officer

By: /s/ Robert S. Tissue  3/26/2002    By: /s/ Julie R. Cook   3/28/2002
    -------------------------------    ----------------------------------
       Robert S. Tissue     Date       Julie R. Cook            Date
       Senior Vice President           Director of Accounting
       & Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

                                    Title                          Date

/s/ Oscar M. Bean                      Director                 3/26/2002
- -------------------------------
Oscar M. Bean

                                       Director                  ________
- -------------------------------
Frank A. Baer, III

                                       Director                  ________
- -------------------------------
Dewey F. Bensenhaver, M.D.

                                       Director                  ________
- -------------------------------
James M. Cookman

/s/ John W. Crites                     Director                 3/27/2002
- -------------------------------
John W. Crites

/s/ Patrick N. Frye                    Director                 3/27/2002
- -------------------------------
Patrick N. Frye

/s/ James Paul Geary                   Director                 3/27/2002
- -------------------------------
James Paul Geary

/s/ Thomas J. Hawse, III               Director                 3/27/2002
- -------------------------------
Thomas J. Hawse, III

                                       14

                             SIGNATURES - continued

                                        Title                     Date
                                        -----                     ----

/s/ Phoebe Fisher Heishman             Director                 3/27/2002
- -------------------------------
Phoebe Fisher Heishman

                                       Director                  ________
- -------------------------------
Gary L. Hinkle

                                       Director                  ________
- -------------------------------
Gerald W. Huffman

/s/ H. Charles Maddy, III              Director                 3/26/2002
- -------------------------------
H. Charles Maddy, III

/s/ Duke A. McDaniel                   Director                 3/27/2002
- -------------------------------
Duke A. McDaniel

                                       Director                  ________
- -------------------------------
Harold K. Michael

                                       Director                  ________
- -------------------------------
Ronald F. Miller

/s/ George R. Ours, Jr.                Director                 3/27/2002
- -------------------------------
George R. Ours, Jr.

                                       Director                  ________
- -------------------------------
Charles S. Piccirillo

/s/ Harry C. Welton, Jr.               Director                 3/27/2002
- -------------------------------
Harry C. Welton, Jr.

                                       15

                                                                     EXHIBIT 11

                 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE

                                                 Years Ended December 31,
                                         ------------------------------------
                                            2001         2000         1999
                                         ----------   ----------   ----------
 Numerator:
    Net Income                           $5,266,462   $3,249,919   $3,043,129
                                         ==========   ==========   ==========

Denominator:
    Denominator for basic earnings
        per share -- weighted average
        common shares outstanding         1,754,449    1,760,845    1,795,621

    Effect of dilutive securities:
        Officer stock option plan               693           --           --
                                         ----------    ----------   ----------

    Denominator for diluted earnings
        per share -- weighted average
        common shares outstanding and
        assumed conversions               1,755,142    1,760,845    1,795,621
                                         ==========   ==========   ==========

Basic earnings per share                 $     3.00   $     1.85   $     1.69
                                         ==========   ==========   ==========

Diluted earnings per share               $     3.00   $     1.85   $     1.69
                                         ==========   ==========   ==========

                                                                     EXHIBIT 13
                       PORTIONS OF 2001 ANNUAL REPORT INCORPORATED BY REFERENCE

COMMON STOCK LISTING

Current market  quotations for the common stock of Summit Financial Group,  Inc.
are available on the OTC Bulletin Board under the symbol SMMF.

COMMON STOCK DIVIDEND AND MARKET PRICE INFORMATION

The following  table  presents  cash  dividends  paid per share and  information
regarding  bid  prices  per  share of  Summit's  common  stock  for the  periods
indicated. The bid prices presented are based on information reported by the OTC
Bulletin Board,  and may reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commission and not represent actual transactions.

                            First      Second       Third       Fourth
                           Quarter     Quarter     Quarter      Quarter
                           -------     -------     -------      -------
 2001
 Dividends paid              $   -      $ 0.35       $   -       $ 0.35
 High Bid                    18.50       22.00       24.50        30.25
 Low Bid                     17.75       18.00       20.38        22.25

 2000
 Dividends paid              $   -      $ 0.25       $   -       $ 0.35
 High Bid                    20.50       18.50       18.25        18.50
 Low Bid                     18.25       15.19       15.50        17.75

Dividends  on  Summit's  common  stock  are  paid on the  15th  day of June  and
December. The record date is the 1st day of each respective month.

As of March 1, 2002, there were  approximately  1,240 shareholders of record
of Summit's common stock.

                      [SUMMIT FINANCIAL GROUP, INC. LOGO]

                                                    FINANCIAL INFORMATION 2001

                                        SELECTED FINANCIAL DATA

                                                                         For the Year Ended
                                                                       (unless otherwise noted)
 -------------------------------------------------------------------------------------------------------------
 (Dollars in thousands, except per share amounts)        2001        2000        1999        1998        1997
 -------------------------------------------------------------------------------------------------------------
 Summary of Operations
                                                                                       
     Interest income                                  $ 37,919    $ 32,264    $ 25,114    $ 20,638    $ 17,358
     Interest expense                                   20,438      18,276      12,234      10,288       8,880
                                                      --------------------------------------------------------
     Net interest income                                17,481      13,988      12,880      10,350       8,478
     Provision for loan losses                             830         558         370         615         554
                                                      --------------------------------------------------------

     Net interest income after provision
         for loan losses                                16,651      13,430      12,510       9,735       7,924
     Noninterest income                                  1,810       1,228         821         753         575
     Noninterest expense                                10,737       9,865       8,718       6,638       5,256
                                                      --------------------------------------------------------

     Income before income taxes                          7,724       4,793       4,613       3,850       3,243
     Income taxes                                        2,458       1,543       1,570       1,248         943
                                                      --------------------------------------------------------

     Net income                                       $  5,266    $  3,250    $  3,043    $  2,602    $  2,300
                                                      ========================================================

Balance Sheet Data (at year end)
     Assets                                           $591,757    $481,239    $385,767    $287,296    $235,241
     Securities                                        207,117     176,741     112,770      64,978      59,134
     Loans                                             347,526     274,153     238,299     195,277     145,067
     Deposits                                          396,205     345,962     297,139     228,341     190,051
     Short-term borrowings                              24,033       9,391      32,348       4,644       7,145
     Long-term borrowings                              123,445      81,086      17,943      16,469      10,396
     Shareholders' equity                               44,287      39,773      35,083      35,957      26,190

Per Share Data
     Basic earnings                                   $   3.00    $   1.85    $   1.69    $   1.53    $   1.64
     Diluted earnings                                     3.00        1.85        1.69        1.53        1.64
     Shareholders' equity (at year end)                  25.24       22.66       19.90       20.02       18.20
     Cash dividends                                       0.70        0.60        0.48        0.45        0.42

Performance Ratios
     Return on average equity                            12.38%       8.93%       8.52%       7.44%       9.45%
     Return on average assets                             1.00%       0.75%       0.88%       0.95%       1.01%
     Dividend payout                                      23.3%       32.5%       27.3%       30.7%       26.2%
     Equity to assets                                      7.5%        8.3%        9.1%       12.5%       11.1%

                                       2

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

INTRODUCTION AND SUMMARY

     The following is management's discussion and analysis of the financial
condition and financial results of operations for Summit Financial Group, Inc.
("Company" or "Summit") and its wholly owned subsidiaries, South Branch Valley
National Bank ("South Branch"), Capital State Bank, Inc. ("Capital State"),
Shenandoah Valley National Bank ("Shenandoah") and Potomac Valley Bank
("Potomac") as of December 31, 2001. This discussion may contain forward looking
statements based on management's expectations and actual results may differ
materially. Since the primary business activities of Summit are conducted
through its wholly owned bank subsidiaries, the following discussion focuses
primarily on the financial condition and operations of those entities. All
amounts and percentages have been rounded for this discussion. This discussion
and analysis should be read in conjunction with the accompanying Consolidated
Financial Statements and Notes thereto of the Company as of December 31, 2001
and for each of the three years then ended.

     This annual report contains certain forward-looking statements (as defined
in the Private Securities Litigation Act of 1995), which reflect management's
beliefs and expectations based on information currently available. These
forward-looking statements are inherently subject to significant risks and
uncertainties, including changes in general economic and financial market
conditions, the Company's ability to effectively carry out its business plans
and changes in regulatory or legislative requirements. Other factors that could
cause or contribute to such differences are changes in competitive conditions
and continuing consolidation in the financial services industry. Although
management believes the expectations reflected in such forward-looking
statements are reasonable, actual results may differ materially.

RESULTS OF OPERATIONS

Earnings Summary

     Net income for the three years ended December 31, 2001, 2000 and 1999, was
$5,266,000, $3,250,000, and $3,043,000 respectively. On a per share basis,
diluted net income was $3.00 in 2001 compared to $1.85 in 2000, and $1.69 in
1999. Return on average equity was 12.38% in 2001 compared to 8.93% in 2000, and
8.52% in 1999. Return on average assets for the year ended December 31, 2001 was
1.00% compared to 0.75% in 2000 and 0.88% in 1999. A summary of the significant
factors influencing the Summit's results of operations and related ratios is
included in the following discussion.

Net Interest Income

     The major component of the Summit's net earnings is net interest income,
which is the excess of interest earned on earning assets over the interest
expense incurred on interest bearing sources of funds. Net interest income is
affected by

changes in volume, resulting from growth and alterations of the balance sheet's
composition, fluctuations in interest rates and maturities of sources and uses
of funds. Management seeks to maximize net interest income through management of
its balance sheet components. This is accomplished by determining the optimal
product mix with respect to yields on assets and costs of funds in light of
projected economic conditions, while maintaining portfolio risk at an acceptable
level.

     Net interest income on a fully tax equivalent basis, average balance sheet
amounts, and corresponding average yields on interest earning assets and costs
of interest bearing liabilities for the years 2001, 2000 and 1999 are presented
in Table I. Table II presents, for the periods indicated, the changes in
interest income and expense attributable to (a) changes in volume (changes in
volume multiplied by prior period rate) and (b) changes in rate (change in rate
multiplied by prior period volume). Changes in interest income and expense
attributable to both rate and volume have been allocated between the factors in
proportion to the relationship of the absolute dollar amounts of the change in
each.

     Net interest income, adjusted to a fully tax equivalent basis, totaled
$18,013,000, $14,431,000 and $13,223,000 for the years ended December 31, 2001,
2000 and 1999, respectively resulting in a net interest margin of 3.6% for 2001
compared to 3.5% and 4.1% for 2000 and 1999, respectively. The net interest
margin recognizes earning asset growth by expressing net interest income as a
percentage of total average earning assets. During 2001, growth in the volumes
of interest earning assets at slightly lower yields, coupled with lower-cost
funding in a falling rate environment contributed to the 10 basis point increase
in Summit's net interest margin. During 2000, higher-cost funding in a rising
rate environment, combined with a liability sensitive interest rate risk
position and a highly competitive market for deposits contributed to the 60
basis point decrease in Summit's net interest margin.

     As identified in Table II, tax equivalent net interest income grew
$3,582,000 and $1,208,000 during 2001 and 2000, respectively, due primarily to
the substantial growth in the volumes of the interest earning assets in both
years.

     If market interest rates were to rise significantly in 2002, the spread
between interest earning assets and interest bearing liabilities could begin to
narrow again, thus negatively impacting the Company's net interest income.
Management continues to monitor the net interest margin through net interest
income simulation to minimize the potential for any significant negative impact.
See the Market Risk Management section for further discussion of the impact
changes in market interest rates could have on Summit.

                                       3

Table I - Average Distribution of Assets, Liabilities and Shareholders' Equity,
Interest Earnings & Expenses, and Average Rates
Dollars in thousands
                                                  2001                             2000                             1999
                                    -------------------------------   -------------------------------   ----------------------------
                                      Average    Earnings/  Yield       Average  Earnings/   Yield       Average   Earnings/  Yield
                                     Balances     Expense    Rate      Balances   Expense    Rate       Balances    Expense    Rate
                                    -------------------------------   -------------------------------   ----------------------------
                                                                                                    
ASSETS
Interest earning assets
  Loans, net of unearned interest (1)
    Taxable                           $ 301,030   $ 25,592   8.5%      $ 248,404  $ 21,630    8.7%      $ 217,625  $ 18,645    8.6%
    Tax-exempt (2)                        3,201        320  10.0%          2,211       261   11.8%          1,551       173   11.2%
  Securities
    Taxable                             164,303     10,897   6.6%        139,476     9,484    6.8%         84,353     5,288    6.3%
    Tax-exempt (2)                       18,526      1,385   7.5%         13,202     1,046    7.9%         11,135       835    7.5%
Federal funds sold and interest
  bearing deposits with other banks       7,002        257   3.7%          4,305       286    6.6%         10,251       516    5.0%
                                      ---------------------------      ---------------------------     ----------------------------
                                        494,062     38,451   7.8%        407,598    32,707    8.0%        324,915    25,457    7.8%
Noninterest earning assets
  Cash and due from banks                 8,872                            8,166                            6,860
  Bank premises and equipment            12,533                           10,666                            8,634
  Other assets                           11,552                            8,877                            6,402
  Allowance for loan losses              (2,777)                          (2,414)                          (2,175)
                                      ----------                       ----------                       ----------
    Total assets                      $ 524,242                        $ 432,893                        $ 344,636
                                      ==========                       ==========                       ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Interest bearing liabilities
  Interest bearing
    demand deposits                   $  74,430   $  1,889   2.5%      $  60,351  $  2,027    3.4%      $  56,201  $  1,717    3.1%
  Savings deposits                       40,052        893   2.2%         39,738     1,094    2.8%         38,782     1,030    2.7%
  Time deposits                         224,068     11,984   5.3%        187,665    10,476    5.6%        153,617     7,811    5.1%
  Short-term borrowings                  11,879        452   3.8%         48,867     3,087    6.3%         13,714       673    4.9%
  Long-term borrowings                   93,231      5,220   5.6%         28,033     1,592    5.7%         18,818     1,003    5.3%
                                      ----------------------------     ---------------------------      ---------------------------
                                        443,660     20,438   4.6%        364,654    18,276    5.0%        281,132    12,234    4.4%
Noninterest bearing liabilities
  Demand deposits                        33,679                           28,017                           25,608
  Other liabilities                       4,383                            3,845                            2,178
                                      ---------                        ---------                        ---------
    Total liabilities                   481,722                          396,516                          308,918
Shareholders' equity                     42,520                           36,377                           35,718
                                      ---------                        ---------                        ---------
  Total liabilities and
    shareholders' equity              $ 524,242                        $ 432,893                        $ 344,636
                                      =========                        =========                        =========
NET INTEREST EARNINGS                             $ 18,013                        $ 14,431                         $ 13,223
                                                  ========                        ========                         ========
NET INTEREST YIELD ON EARNING ASSETS                         3.6%                             3.5%                             4.1%
                                                             ====                             ====                             ====

(1)  - For  purposes of this table,  non-accrual  loans are  included in average
     loan  balances.  Included  in  interest  and fees on loans are loan fees of
     $227,000, $343,000 and $277,000 for the years ended December 31, 2001, 2000
     and 1999, respectively.

(2)  - For purposes of this table,  interest income on tax-exempt securities and
     loans has been adjusted  assuming an effective  combined  Federal and state
     tax rate of 34% for all  years  presented.  The tax  equivalent  adjustment
     results  in an  increase  in  interest  income of  $533,000,  $443,000  and
     $343,000  for  the  years  ended   December   31,  2001,   2000  and  1999,
     respectively.

                                       4

Table II - Changes in Interest Margin Attributable to Rate and Volume
Dollars in thousands

                                               2001 Versus 2000                   2000 Versus 1999
                                       ------------------------------   ------------------------------
                                            Increase (Decrease)              Increase (Decrease)
                                             Due to Change in:                Due to Change in:
                                       ------------------------------   ------------------------------
                                         Volume      Rate       Net       Volume      Rate       Net
                                       ------------------------------   ------------------------------
                                                                            
Interest earned on:
Loans
  Taxable                               $ 4,484   $  (522)   $ 3,962     $ 2,676      $ 309   $ 2,985
  Tax-exempt                                104       (45)        59          78         10        88
Securities
  Taxable                                 1,651      (238)     1,413       3,715        481     4,196
  Tax-exempt                                401       (62)       339         162         49       211
Federal funds sold and interest
  bearing deposits with other banks         132      (161)       (29)       (361)       131      (230)
                                       ------------------------------   ------------------------------
   Total interest earned on
    interest earning assets               6,772    (1,028)     5,744       6,270        980     7,250
                                       ------------------------------   ------------------------------

Interest paid on:
Interest bearing demand
  deposits                                  417      (555)      (138)        132        178       310
Savings deposits                              9      (210)      (201)         25         39        64
Time deposits                             1,962      (454)     1,508       1,849        816     2,665
Short-term borrowings                    (1,728)     (907)    (2,635)      2,171        243     2,414
Long-term borrowings                      3,651       (23)     3,628         519         70       589
                                       ------------------------------   ------------------------------
  Total interest paid on
    interest bearing liabilities          4,311    (2,149)     2,162       4,696      1,346     6,042
                                       ------------------------------   ------------------------------

     Net interest income                $ 2,461   $ 1,121    $ 3,582     $ 1,574     $ (366)  $ 1,208
                                       ==============================   ==============================

Provision for Loan Losses

     The provision for loan losses represents management's determination of the
amount necessary to be charged against the current period's earnings in order to
maintain the allowance for loan losses at a level which is considered adequate
in relation to the estimated risk inherent in the loan portfolio. The provision
for loan losses for each of the years ended December 31, 2001, 2000 and 1999
totaled $830,000, $558,000 and $370,000, respectively. As further discussed in
the Loan Portfolio and Risk Elements sections of this analysis, the $272,000 and
$188,000 increases in the provision for loan losses in 2001 and 2000,
respectively, reflect the continued growth of Summit's loan portfolio. An
analysis of the components comprising the allowance for loan losses for each of
the past five years, including charge offs and recoveries within each
significant loan classification, is presented in Table VIII.

Noninterest Income

     Noninterest income totaled $1,810,000,  $1,228,000 and $821,000,  or 0.34%,
0.28%  and  0.24% of  average  assets,  in 2001,  2000 and  1999,  respectively.
Included in noninterest income for 2001 is $379,000  securities gains.  Included
in noninterest income for 2000 is a $225,000 gain South Branch recognized on the
sale of its Petersburg,  West Virginia branch office.  Further detail  regarding
noninterest income follows in Table III.

Noninterest Expense

     Noninterest expense totaled $10,737,000, $9,865,000 and $8,718,000 or
2.04%, 2.28% and 2.53% of average assets for each of the years ended December
31, 2001, 2000 and 1999, respectively. Total noninterest expense increased
$872,000 in 2001 compared to 2000 and $1,147,000 in 2000 compared to 1999. The
primary factor contributing to growth in noninterest expense in 2001 was an
$807,000 increase in salaries and employee benefits, due to general merit
raises, and an increase in number of personnel associated with the growth
throughout the Company. The primary factors contributing to growth in
noninterest expense in 2000 were: operating expenses of Capital State's
Greenbrier County branches following their acquisition in April 1999, operating
expenses of Shenandoah following its opening in May 1999, and one time expenses
associated with the Potomac merger. Table III presents additional information
regarding Summit's noninterest expense.

                                       5

 Table III - Noninterest Income and Expense
 In thousands

                                       2001          2000        1999
                                     ----------------------------------

 Noninterest income
   Insurance commissions             $    105      $   110     $    91
   Service fees                         1,055          876         792
   Securities gains (losses)              379            2        (236)
   Gain on sale of branch bank              -          225           -
   Other                                  271           15         174
                                     ----------------------------------

              Total                  $  1,810      $ 1,228     $   821
                                     ==================================

 Noninterest expense
   Salaries and employee benefits    $  5,670      $ 4,863     $ 4,359
   Net occupancy expense                  706          628         559
   Equipment expense                    1,171          974         716
   Supplies                               330          303         299
   Amortization of intangibles            282          298         269
   Other                                2,578        2,799       2,516
                                     ----------------------------------

              Total                  $ 10,737      $ 9,865     $ 8,718
                                     ==================================

Income Tax Expense

     Income tax expense for the three years ended December 31, 2001, 2000 and
1999 totaled $2,457,000, $1,543,000 and $1,570,000, respectively. Refer to Note
10 of the accompanying consolidated financial statements for further information
and additional discussion of the significant components influencing the
Company's effective income tax rates.

CHANGES IN FINANCIAL POSITION

     Total average assets in 2001 were $524,242,000, an increase of 21.1% over
2000's average of $432,893,000. Similarly, average assets grew 25.6% in 2000,
from $344,636,000 in 1999. The primary factor contributing to these increases is
the continued strong growth of Shenandoah following its organization in May
1999. Significant changes in the components of the Summit's balance sheet in
2001 and 2000 are discussed below.

Securities

     Securities comprised approximately 35.0% of total assets at December 31,
2001 compared to 36.7% at December 31, 2000. Average securities approximated
$182,829,000 for 2001 or 19.6% more than 2000's average of $152,678,000. The
growth in the Company's securities portfolio in 2001 reflects increased
investments primarily in mortgage-backed securities, which were funded
principally by the deposit growth of Shenandoah in 2001. Refer to Note 4 of the
accompanying consolidated financial statements for details of amortized cost,
the estimated fair values, unrealized gains and losses as well as the security
classifications by type.

     Substantially all securities are classified as available for sale to
provide management with flexibility to better manage its balance sheet structure
and react to asset/liability management issues as they arise. At December 31,
2001, Summit did not own securities of any one issuer that were not issued by
the U.S. Treasury or a U.S. Government agency that exceeded ten percent of
shareholders' equity. The maturity distribution of the securities portfolio at
December 31, 2001, together with the weighted average yields for each range of
maturity, are summarized in Table IV. The stated average yields are actual
yields and are not stated on a tax equivalent basis.

                                       6

  Table IV - Securities Maturity Analysis
 (At amortized cost, dollars in thousands)

                                                                 After one                After five
                                          Within                 but within               but within                After
                                         one year                five years               ten years               ten years
                                ---------------------------------------------------------------------------------------------------
                                     Amount    Yield         Amount     Yield         Amount    Yield         Amount     Yield
                                ---------------------------------------------------------------------------------------------------
                                                                                                     
 Available for sale
 U. S. Government agencies
    and corporations                   3,314    5.7%          26,653     6.3%           7,021    7.4%               -     0.0%
 Mortgage backed securities           46,179    6.5%          42,092     6.3%          12,056    6.1%           2,675     6.0%
 State and political
    subdivisions                         686    4.8%           6,478     5.4%           4,206    5.2%          19,445     5.2%
 Corporate debt securities               253    7.3%          19,902     6.8%           1,297    4.5%             238     9.9%
 Other                                     -      -            1,506     5.8%               -    0.0%          10,916     5.9%
                                    --------                --------                 --------                --------

    Total available for sale        $ 50,432    6.4%        $ 96,631     6.3%        $ 24,580    6.3%        $ 33,274     5.5%
                                    ========                ========                 ========                ========
 Held to maturity
 State and political
    subdivisions                    $    150    5.0%        $      -       -         $ -           -         $      -       -
                                    ========                ========                 ========                ========

Loan Portfolio

     Table V depicts loan balances by type and the respective percentage of each
to total loans at December 31, as follows:

 Table V - Loans by Type
Dollars in thousands

                                    2001                 2000                1999                 1998                  1997
                             -------------------   -----------------  -------------------  -------------------  -------------------
                                       Percent             Percent              Percent              Percent              Percent
                              Amount   of Total    Amount  of Total     Amount  of Total     Amount  of Total     Amount  of Total
                             -------------------  ------------------  -------------------  -------------------  -------------------

Commercial, financial,
    and agricultural         $148,041    42.6%    $108,114   39.4%    $ 78,894    33.1%    $ 54,359   27.8%     $ 42,736    29.5%
Real estate - construction      2,394     0.7%       2,729    1.0%       2,012     0.8%       1,801    0.9%          144     0.1%
Real estate - mortgage        149,050    42.9%     124,326   45.3%     116,779    49.0%     101,014   51.7%       69,155    47.7%
Consumer                       40,778    11.7%      36,983   13.5%      38,091    16.0%      36,197   18.5%       32,248    22.2%
Other                           7,263     2.1%       2,001    0.8%       2,524     1.1%       1,906    1.1%          784     0.5%
                             ------------------   ------------------  -------------------  ------------------   -------------------

     Total loans             $347,526   100.0%    $274,153  100.0%    $238,300   100.0%    $195,277  100.0%     $145,067   100.0%
                             ==================   ==================  ===================  ==================   ===================

     Total net loans averaged $304,231,000 in 2001 and comprised 58.0% of total
average assets compared to $250,615,000 or 57.9% of total average assets during
2000. The increase in the dollar volume of loans is primarily attributable to
continuation of the Company's strategy which began in 1996 to aggressively seek
quality commercial and real estate loans.

     Refer to Note 5 of the accompanying consolidated financial statements for
the Summit's loan maturities and a discussion of the Company's adjustable rate
loans as of December 31, 2001.

                                       7

     In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities which are disclosed in Note 12 to the
accompanying consolidated financial statements but not reflected in the
accompanying consolidated financial statements. There have been no significant
changes in these type of commitments and contingent liabilities and the Company
does not anticipate any material losses as a result of these commitments.

Deposits

     Total deposits at December 31, 2001 increased $50,243,000 or 14.5% compared
to December 31, 2000. Average deposits increased $56,458,000, or 17.9% during
2001. This increase resulted primarily from the growth of Shenandoah's deposits.

     See Table I for average deposit balance and rate information by deposit
type for 2001, 2000 and 1999 and Note 8 of the accompanying consolidated
financial statements for a maturity distribution of time deposits as of December
31, 2001.

Borrowings

     Lines of Credit:  The Company has remaining  available lines of credit from
the Federal Home Loan Bank totaling $70,576,000 at December 31, 2001. Management
uses these lines  primarily to fund loans to customers.  Funds acquired  through
this  program are  reflected on the  consolidated  balance  sheet in  short-term
borrowings or long-term borrowings, depending on the repayment terms of the debt
agreement.

     Short-term Borrowings: Total short-term borrowings increased $14,642,000
from $9,391,000 at December 31, 2000 to $24,033,000 at December 31, 2001. See
Note 9 of the accompanying consolidated financial statements for additional
disclosures regarding the Company's short-term borrowings.

     Long-term Borrowings: Total long-term borrowings of $123,445,000 at
December 31, 2001, consisting primarily of funds borrowed on available lines of
credit from the Federal Home Loan Bank., increased $42,359,000 compared to the
$81,086,000 outstanding at December 31, 2000. These borrowings were made
principally to fund the Company's loan growth. Refer to Note 9 of the
accompanying consolidated financial statements for additional information
regarding the Summit's long-term borrowings.

ASSET QUALITY

Table VI presents a summary of non-performing loans at December 31, as follows.

 Table VI - Nonperforming Loans
Dollars in thousands

                               2001        2000      1999        1998      1997
                             --------------------------------------------------
Nonaccrual loans             $   788      $ 568     $ 522     $   783     $ 220
Accruing loans past due
  90 days or more                328        267       476         431       402
Restructured loans                 -          -         -           -        55
                             --------------------------------------------------

Total                        $ 1,116      $ 835     $ 998     $ 1,214     $ 677
                             ==================================================
Percentage of total loans       0.3%       0.3%      0.4%        0.6%      0.5%
                             ==================================================

     As illustrated in Table VI, the quality of Summit's loan portfolio remains
sound. Despite an increase in total nonaccrual loans and accruing loans past due
90 days or more from $835,000 at December 31, 2000 to $1,116,000 at December 31,
2001, nonperforming loans remain at historically moderate levels in relation to
the loan portfolio's size and substantially below recent industry averages.
Refer to Note 5 of the accompanying consolidated financial statements for
additional discussion of non-accrual loans and to Note 6 for a discussion of
impaired loans which are included in the above balances.

     Summit maintains an allowance for loan losses at a level considered
adequate to provide for losses that can be reasonably anticipated. The Company
conducts quarterly evaluations of its loan portfolio to determine its adequacy.
The evaluation is based on assessments of specifically identified loans, loss
experience factors, current and anticipated economic conditions and other
factors to identify and estimate inherent losses from homogeneous pools of
loans. In addition, the Company conducts comprehensive, ongoing reviews of its
loan portfolio, which encompasses the identification of all potential problem
credits to be included on an internally generated watch list.

                                       8

     The identification of loans for inclusion on the watch list is facilitated
through the use of various sources, including past due loan reports, previous
internal and external loan evaluations, classified loans identified as part of
regulatory agency loan reviews and reviews of new loans representative of
current lending practices. Once this list is reviewed to ensure it is complete,
management reviews the specific loans for collectibility, performance and
collateral protection. In addition, a grade is assigned to the individual loans
utilizing internal grading criteria, which is somewhat similar to the criteria
utilized by each subsidiary bank's primary regulatory agency. Based on the
results of these reviews, specific reserves for potential losses are identified
and the allowance for loan losses is adjusted appropriately through a provision
for loan losses.

     While there may be some loans or portions of loans identified as potential
problem credits which are not specifically identified as either nonaccrual or
accruing loans past due 90 or more days, they are considered by management to be
insignificant to the overall disclosure and are, therefore, not specifically
quantified within this discussion. In addition, management feels these
additional loans do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity or capital resources. Also, these loans do not represent material
credits about which management is aware of any information which would cause the
borrowers to not comply with the loan repayment terms.

     Specific reserves are allocated to non-performing loans based on the
quarterly evaluation of expected loan loss reserve requirements as determined by
management. In addition, a portion of the reserve is determined through the use
of loan loss experience factors which do not provide for identification of
specific potential problem loans.

 As noted above, some of the loans, which are not deemed significant, are
included in the watch list of potential problem loans and have specific reserves
allocated to them.

     The allocated portion of the subsidiary banks' allowance for loan losses is
established on a loan-by-loan and pool-by-pool basis. The unallocated portion is
for inherent losses that probably exist as of the evaluation date, but which
have not been specifically identified by the processes used to establish the
allocated portion due to inherent imprecision in the objective processes
management utilizes to identify probable and estimable losses. This unallocated
portion is subjective and requires judgment based on various qualitative factors
in the loan portfolio and the market in which the Company operates. At December
31, 2001 and 2000, respectively, the unallocated portion of the allowance
approximated $152,000 and $94,000, or 4.9% and 3.7% of the total allowance. This
unallocated portion of the allowance is considered necessary based on
consideration of the known risk elements in certain pools of loans in the loan
portfolio and management's assessment of the economic environment in which the
Company operates. More specifically, while loan quality remains good, the
subsidiary banks have typically experienced greater losses within certain
homogeneous loan pools when the Company's market area has experienced economic
downturns or other significant negative factors or trends, such as increases in
bankruptcies, unemployment rates or past due loans.

     At December 31, 2001 and 2000, Summit's allowance for loan losses totaled
$3,110,000, or 0.89% of total loans and $2,571,000 or 0.94% of total loans,
respectively, and is considered adequate to cover inherent losses in the
Company's loan portfolio. Table VII presents an allocation of the allowance for
loan losses by loan type at each respective year end date, as follows.

 Table VII - Allocation of the Allowance for Loan Losses
 Dollars in thousands

                              2001                  2000                   1999                 1998                   1997
                       -----------------     -----------------      -----------------     -----------------      -----------------
                                  % of                  % of                   % of                  % of                   % of
                                loans in              loans in               loans in              loans in               loans in
                                  each                  each                   each                  each                   each
                                category              category               category              category               category
                                to total              to total               to total              to total               to total
                        Amount    loans       Amount    loans        Amount    loans       Amount    loans        Amount    loans
                       -----------------     -----------------      -----------------     -----------------      -----------------
                                                                                               
 Commercial            $ 1,036     42.5%     $ 1,037     38.1%      $   951     33.3%     $   861     27.8%      $   584     29.5%
 Real estate               985     43.5%         127     47.7%          383     49.5%         366     52.7%          302     47.8%
 Installment               937     11.9%       1,313     13.5%          806     16.1%         800     18.5%          536     22.2%
 Other                       -      2.1%           -      0.7%            -      1.1%           -      1.0%            -      0.5%
 Unallocated               152         -          94         -           92         -          86         -           67         -
                       -----------------     -----------------      -----------------     -----------------      -----------------
                       $ 3,110    100.0%     $ 2,571    100.0%      $ 2,232    100.0%     $ 2,113    100.0%      $ 1,489    100.0%
                       =================     =================      =================     =================      =================

                                       9

     At December 31, 2001, the Company had  approximately  $81,000 in other real
estate  owned  which was  obtained  as the  result of  foreclosure  proceedings.
Foreclosures  have been  insignificant  throughout  2001 and management does not
anticipate  any  material  losses on the property  currently  held in other real
estate owned.

     A reconciliation of the activity in the allowance for loan losses follows:

 Table VIII - Allowance for Loan Losses
In thousands

                                              2001       2000       1999       1998       1997
                                            ---------------------------------------------------
                                                                         
Balance, beginning of year                  $ 2,571    $ 2,232    $ 2,113    $ 1,489    $ 1,367

Losses:
  Commercial financial & agriculture            108          -        165        183         93
  Real estate - mortgage                         47         63         32          1         30
  Consumer                                      191        175        144        204        371
  Other                                          76         49         37         25         67
                                            ---------------------------------------------------
                      Total                     422        287        378        413        561
                                            ---------------------------------------------------
Recoveries:
  Commercial financial & agriculture             10          2         40          3         52
  Real estate - mortgage                          1          2         10         22         15
  Consumer                                       99         53         71        118         60
  Other                                          21         11          6          7          2
                                            ---------------------------------------------------
                      Total                     131         68        127        150        129
                                            ---------------------------------------------------

Net losses                                      291        219        251        263        432
                                            ---------------------------------------------------
Allowance of purchased subsidiary                 -          -          -        272          -
Provision for loan losses                       830        558        370        615        554
                                            ---------------------------------------------------
Balance, end of year                        $ 3,110    $ 2,571    $ 2,232    $ 2,113    $ 1,489
                                            ===================================================

LIQUIDITY

     Liquidity reflects the Company's ability to ensure the availability of
adequate funds to meet loan commitments and deposit withdrawals, as well as
provide for other transactional requirements. Liquidity is provided primarily by
funds invested in cash and due from banks (net of float and reserves), Federal
funds sold, non-pledged securities, and available lines of credit with the
Federal Home Loan Bank, the total of which approximated at December 31, 2001,
$126 million or 21% of total consolidated assets.

     The Company's liquidity position is monitored continuously to ensure that
day-to-day as well as anticipated funding needs are met. Management is not aware
of any trends, commitments, events or uncertainties that have resulted in or are
reasonably likely to result in a material change to Summit's liquidity.

MARKET RISK MANAGEMENT

     Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to changes in interest rates, exchange rates
and equity prices. Interest rate risk is Summit's primary market risk and
results from timing differences in the repricing of assets, liabilities and
off-balance sheet instruments, changes in relationships between rate indices and
the potential exercise of imbedded options. The principal objective of
asset/liability management is to minimize interest rate risk and the Company's
actions in this regard are taken under the guidance of its Asset/Liability
Management Committee ("ALCO"), which is comprised of members of senior
management and members of the Board of Directors. The ALCO actively formulates
the economic assumptions that the Company uses in its financial planning and
budgeting process and establishes policies which control and monitor the
Company's sources, uses and prices of funds.

                                       10

     Some amount of interest rate risk is inherent and appropriate to the
banking business. Summit's net income is affected by changes in the absolute
level of interest rates. The Company's interest rate risk position is liability
sensitive; that is, liabilities are likely to reprice faster than assets,
resulting in a decrease in net income in a rising rate environment. Conversely,
net income should increase in a falling interest rate environment. Net income is
also subject to changes in the shape of the yield curve. In general, a
flattening yield curve would result in a decline in Company earnings due to the
compression of earning asset yields and funding rates, while a steepening would
result in increased earnings as margins widen.

     Several techniques are available to monitor and control the level of
interest rate risk. Summit primarily uses earnings simulations modeling to
monitor interest rate risk. The earnings simulation model forecasts the effects
on net interest income under a variety of interest rate scenarios that
incorporate changes in the absolute level of interest rates and changes in the
shape of the yield curve. Assumptions used to project yields and rates for new
loans and deposits are derived from historical analysis. Securities portfolio
maturities and prepayments are reinvested in like instruments. Mortgage loan
prepayment assumptions are developed from industry estimates of prepayment
speeds. Noncontractual deposit repricings are modeled on historical patterns.

     As of December 31, 2001, Summit's earnings simulation model projects net
interest income would decrease by approximately 4.3% if rates rise evenly by 200
basis points over the next year, as compared to projected stable rate net
interest income. Conversely, the model projects that if rates fall evenly by 200
basis points over the next year, Company net interest income would rise by
approximately 0.7%, as compared to projected stable rate net interest income.
These projected changes are well within Summit's ALCO policy limit of +/- 10%.

CAPITAL RESOURCES

     Summit's capital position remains strong, despite its continued growth.
Stated as a percentage of total assets, the Company's equity ratio was 7.5% and
8.3% at December 31, 2001 and 2000, respectively. The Company's risk weighted
tier I capital, total capital and leverage capital ratios approximated 10.5%,
11.3% and 7.1%, respectively, at December 31, 2001, all of which are in excess
of the minimum guidelines to be "well capitalized" under the regulatory prompt

corrective action provisions. The Company's subsidiary banks are also subject to
minimum capital ratios as further discussed in Note 13 of the accompanying
consolidated financial statements.

     Cash dividends per share rose 16.7% to $0.70 in 2001 compared to $0.60 in
2000, representing dividend payout ratios of 23.3% and 32.5% for 2001 and 2000,
respectively. It is the intention of management and the Board of Directors to
continue to pay dividends on a similar schedule during 2002. Future cash
dividends will depend on the earnings and financial condition of the subsidiary
banks as well as general economic conditions.

     The primary source of funds for the dividends paid to shareholders by
Summit is dividends received from its subsidiary banks. Dividends paid by
Summit's subsidiary banks are subject to restrictions by banking regulations.
The most restrictive provision requires approval by the respective bank's
regulatory agency if dividends declared in any year exceed the bank's current
year's net income, as defined, plus its retained net profits of the two
preceding years. As of December 31, 2001, no significant retained profits are
available for distribution to Summit as dividends from its subsidiary banks
without regulatory approval. Management is presently not aware of any
circumstances, conditions or events which would reasonably preclude the approval
of dividend requests from its subsidiary banks' earnings in the amounts
necessary to fund Summit's anticipated shareholder dividends in 2002.

                                       11

                         QUARTERLY FINANCIAL INFORMATION

- ------------------------------------------------------------------------------------------------------------
                                                     First      Second      Third      Fourth       Full
 (Dollars in thousands, except per share amounts)   Quarter     Quarter    Quarter     Quarter      Year
- ------------------------------------------------------------------------------------------------------------

2001
Interest income                                       $ 9,126     $ 9,380    $ 9,636     $ 9,777   $ 37,919
Interest expense                                        5,304       5,200      5,115       4,819     20,438
Net interest income                                     3,822       4,180      4,521       4,958     17,481
Provision for loan losses                                 145         180        228         277        830
Securities gains (losses)                                  84          93        204          (2)       379
Other noninterest income                                  281         305        356         489      1,431
Noninterest expense                                     2,521       2,764      2,742       2,710     10,737
Income before income taxes                              1,521       1,634      2,111       2,458      7,724
Net income                                              1,009       1,199      1,438       1,620      5,266
Basic earnings per share                                 0.57        0.68       0.82        0.92       3.00
Diluted earnings per share                               0.57        0.68       0.82        0.92       3.00
Dividends paid per share                                    -        0.35          -        0.35       0.70

2000
Interest income                                       $ 7,291     $ 7,800    $ 8,335     $ 8,837   $ 32,263
Interest expense                                        3,749       4,329      4,912       5,286     18,276
Net interest income                                     3,542       3,471      3,423       3,551     13,987
Provision for loan losses                                 128         128        140         161        557
Securities gains (losses)                                   -           -          -           2          2
Gain on sale of branch bank                                 -         225          -           -        225
Other noninterest income                                  260         274        289         178      1,001
Noninterest expense                                     2,307       2,524      2,476       2,558      9,865
Income before income taxes                              1,367       1,318      1,096       1,012      4,793
Net income                                                929         934        743         644      3,250
Basic earnings per share                                 0.53        0.53       0.42        0.37       1.85
Diluted earnings per share                               0.53        0.53       0.42        0.37       1.85
Dividends paid per share                                    -        0.25          -        0.35       0.60

                                       12

                     [ARNETT & FOSTER, P.L.L.C. LETTERHEAD]

                         REPORT TO INDEPENDENT AUDITORS

To the Board of Directors
Summit Financial Group, Inc.
Moorefield, West Virginia

     We have audited the accompanying consolidated balance sheets of Summit
Financial Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Summit
Financial Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

                                                /s/ Arnett & Foster, P.L.L.C.

Charleston, West Virginia
February 8, 2002

                                       13

                       CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets
                                                             December 31,
- --------------------------------------------------------------------------------
                                                         2001           2000
- --------------------------------------------------------------------------------
 ASSETS
Cash and due from banks                           $    11,776,231  $   7,091,871
Interest bearing deposits with other banks              2,261,826        473,000
Federal funds sold                                      1,848,129      1,811,000
Securities available for sale                         206,967,097    176,340,410
Securities held to maturity                               150,280        400,835
Loans, net                                            344,415,429    271,582,652
Premises and equipment, net                            12,911,507     12,246,821
Accrued interest receivable                             3,874,002      3,760,701
Intangible assets                                       3,352,281      3,634,472
Other assets                                            4,199,975      3,897,339
- --------------------------------------------------------------------------------
                                  Total assets    $   591,756,757  $ 481,239,101
================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
    Deposits
        Non interest bearing                      $    38,685,688  $  30,031,409
        Interest bearing                              357,519,290    315,930,441
- --------------------------------------------------------------------------------
                                 Total deposits       396,204,978    345,961,850
- --------------------------------------------------------------------------------

    Short-term borrowings                              24,032,790      9,390,814
    Long-term borrowings                              123,444,531     81,085,929
    Other liabilities                                   3,787,111      5,027,307
- --------------------------------------------------------------------------------
                                 Total liabilities    547,469,410    441,465,900
- --------------------------------------------------------------------------------
 Commitments and Contingencies

 Shareholders' Equity
     Common stock, $2.50 par value; authorized
    5,000,000 shares; issued 1,780,780 shares         4,451,950        4,451,950
Capital surplus                                       8,256,901        8,256,901
Retained earnings                                    30,803,543       26,765,097
Less cost of shares acquired for the treasury
    2001 - 26,470 shares; 2000 - 25,670 shares        (532,479)        (517,725)

Accumulated other comprehensive income                1,307,432          816,978
- --------------------------------------------------------------------------------
     Total shareholders' equity                      44,287,347       39,773,201
- --------------------------------------------------------------------------------
     Total liabilities and shareholders' equity   $ 591,756,757    $ 481,239,101
================================================================================

See notes to consolidated financial statements.

                                       14

Consolidated Statements of Income

                                                                             For the Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
                                                                           2001          2000            1999
- ----------------------------------------------------------------------------------------------------------------
                                                                                           
 Interest income
     Interest and fees on loans
        Taxable                                                       $ 25,592,985   $ 21,630,083   $ 18,645,426
        Tax-exempt                                                         210,744        172,714        114,424
    Interest and dividends on securities
        Taxable                                                         10,896,837      9,484,352      5,287,779
        Tax-exempt                                                         961,270        690,674        550,855
    Interest on interest bearing deposits with other banks                  22,983         68,748        186,623
    Interest on Federal Funds sold                                         234,342        216,944        329,285
- ----------------------------------------------------------------------------------------------------------------
                Total interest income                                   37,919,161     32,263,515     25,114,392
- ----------------------------------------------------------------------------------------------------------------
Interest expense
    Interest on deposits                                                14,765,031     13,596,688     10,558,788
    Interest on short-term borrowings                                      452,340      3,087,018        672,488
    Interest on long-term borrowings                                     5,220,402      1,592,352      1,002,750
- ----------------------------------------------------------------------------------------------------------------
                Total interest expense                                  20,437,773     18,276,058     12,234,026
- ----------------------------------------------------------------------------------------------------------------
                Net interest income                                     17,481,388     13,987,457     12,880,366
    Provision for loan losses                                              830,000        557,500        370,000
- ----------------------------------------------------------------------------------------------------------------
                Net interest income after provision for loan losses     16,651,388     13,429,957     12,510,366
- ----------------------------------------------------------------------------------------------------------------
Other income
    Insurance commissions                                                  105,179        109,802         91,363
    Service fees                                                         1,054,799        875,964        791,940
    Securities gains (losses)                                              379,048          2,364       (235,945)
    Gain on sale of branch bank                                                  -        224,629              -
    Other                                                                  270,524         15,568        173,574
- ----------------------------------------------------------------------------------------------------------------
                Total other income                                       1,809,550      1,228,327        820,932
- ----------------------------------------------------------------------------------------------------------------
Other expenses
    Salaries and employee benefits                                       5,670,072      4,863,257      4,358,944
    Net occupancy expense                                                  706,346        627,834        559,242
    Equipment expense                                                    1,170,491        974,474        716,547
    Supplies                                                               329,813        302,652        298,878
    Amortization of intangibles                                            282,192        297,683        268,986
    Other                                                                2,578,427      2,799,082      2,515,622
- ----------------------------------------------------------------------------------------------------------------
                Total other expenses                                    10,737,341      9,864,982      8,718,219
- ----------------------------------------------------------------------------------------------------------------
Income before income tax expense                                         7,723,597      4,793,302      4,613,079
    Income tax expense                                                   2,457,135      1,543,383      1,569,950
- ----------------------------------------------------------------------------------------------------------------
                Net income                                            $  5,266,462   $  3,249,919   $  3,043,129
================================================================================================================

Basic earnings per common share                                       $       3.00   $       1.85   $       1.69
================================================================================================================

Diluted earnings per common share                                     $       3.00   $       1.85   $       1.69
================================================================================================================

Average common shares outstanding
    Basic                                                                1,754,449      1,760,845      1,795,621
================================================================================================================
    Diluted                                                              1,755,142      1,760,845      1,795,621
================================================================================================================

 See notes to consolidated financial statements

                                       15

Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 2001, 2000 and 1999

- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Accumulated
                                                                                                            Other          Total
                                                Common        Capital       Retained        Treasury    Comprehensive  Shareholders'
                                                Stock         Surplus       Earnings         Stock         Income          Equity
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
Balance, December 31, 1998                 $  4,493,513   $  9,019,279   $ 22,358,772   $   (384,724)   $    471,223   $ 35,958,063
Comprehensive income:
  Net income                                          -              -      3,043,129              -               -      3,043,129
  Other comprehensive income,
    net of deferred taxes of $1,452,357:
    Net unrealized (loss) on
      securities of $(2,477,947), net
      of reclassification adjustment
      for (losses) included in net
      income of $(143,927)                            -              -              -              -      (2,334,020)    (2,334,020)
                                                                                                                       ------------
    Total comprehensive income                        -              -              -              -               -        709,109
Dissenting shares                               (41,248)      (711,577)             -              -               -       (752,825)
Cash dividends declared:
    Summit ($0.475 per share)                         -              -       (561,727)             -               -       (561,727)
    Potomac                                           -              -       (270,000)             -               -       (270,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                    4,452,265      8,307,702     24,570,174       (384,724)     (1,862,797)    35,082,620
Comprehensive income:
  Net income                                          -              -      3,249,919              -               -      3,249,919
  Other comprehensive income,
    net of deferred taxes of $1,667,374:
    Net unrealized gain on
      securities of $2,681,241, net
      of reclassification adjustment
      for gains included in net
      income of $1,466                                -              -              -              -       2,679,775      2,679,775
                                                                                                                       ------------
    Total comprehensive income                        -              -              -              -                      5,929,694
Cost of 7,440 shares acquired                                                                                          ------------
    for the treasury                                  -              -              -       (133,001)              -       (133,001)
Purchase of fractional shares                      (315)        (4,531)             -              -               -         (4,846)
Dissenting shares                                     -        (46,270)             -              -               -        (46,270)
Cash dividends declared ($0.60 per share)             -              -     (1,054,996)             -               -     (1,054,996)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                    4,451,950      8,256,901     26,765,097       (517,725)        816,978     39,773,201
Comprehensive income:
  Net income                                          -              -      5,266,462              -               -      5,266,462
  Other comprehensive income,
    net of deferred taxes of $300,601:
    Net unrealized gain on
      securities of $725,464, net
      of reclassification adjustment
      for gains included in net
      income of $235,010                              -              -              -              -         490,454        490,454
                                                                                                                       ------------
    Total comprehensive income                        -              -              -              -                      5,756,916
                                                                                                                       ------------
Cost of 800 shares acquired
    for the treasury                                  -              -              -        (14,754)              -        (14,754)
Cash dividends declared ($0.70 per share)             -              -     (1,228,016)             -               -     (1,228,016)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001                 $  4,451,950   $  8,256,901   $ 30,803,543   $   (532,479)   $  1,307,432   $ 44,287,347
====================================================================================================================================

 See notes to consolidated financial statements

                                       16

Consolidated Statements of Cash Flows

                                                                                     For the Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                  2001              2000            1999
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                      
 CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                               $   5,266,462    $   3,249,919    $   3,043,129
    Adjustments to reconcile net earnings to
        net cash provided by operating activities:
        Depreciation                                                               899,554          731,073          584,212
        Provision for loan losses                                                  830,000          557,500          370,000
        Deferred income tax expense (benefit)                                     (277,540)        (107,377)          93,662
        Security (gains) losses                                                   (379,048)          (2,364)         235,945
        (Gain) loss on disposal of premises, equipment and other assets             91,695           18,212            3,709
        (Gain) loss on sale of branch                                                    -         (224,629)               -
        Amortization of securities premiums (accretion                                   -                -
            of discounts), net                                                    (291,338)         (97,821)         184,399
        Amortization of goodwill and purchase
            accounting adjustments, net                                            284,901          215,982          123,742
        (Increase) decrease in accrued interest receivable                        (113,301)      (1,350,002)        (633,554)
        (Increase) decrease in other assets                                        (38,028)          42,409       (2,242,887)
        Increase (decrease) in other liabilities                                   786,508          530,716        1,901,227
- -----------------------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                            7,059,865        3,563,618        3,663,584
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from maturities and calls of
        securities held to maturity                                                250,000          140,000          349,871
    Principal payments received on
        securities held to maturity                                                      -          254,281          384,326
    Proceeds from maturities and calls of
        securities available for sale                                           56,133,634        2,930,109       13,706,762
    Proceeds from sales of
        securities available for sale                                           40,206,987       11,506,633        4,062,879
    Principal payments received on
        securities available for sale                                           26,554,708        4,670,845        4,990,386
    Purchases of securities available for sale                                (154,138,998)     (75,662,408)     (76,831,440)
    Net (increase) decrease in federal funds sold                                  (37,129)       1,034,216        7,897,529
    Net loans made to customers                                                (73,781,647)     (42,357,660)     (34,671,292)
    Purchases of premises and equipment                                         (1,705,880)      (4,204,622)      (1,809,722)
    Proceeds from sales of premises, equipment and other assets                    134,239          206,804          485,695
   (Purchases of) proceeds from interest bearing deposits with other banks      (1,788,826)       5,327,987       (3,959,485)
    Purchases of life insurance contracts                                          (74,200)      (1,000,000)      (1,246,000)
    Net cash acquired/paid in acquisitions (divestitures)                                -         (820,679)      35,071,461
- -----------------------------------------------------------------------------------------------------------------------------
            Net cash (used in) investing activities                           (108,247,112)     (97,974,494)     (51,569,030)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase in demand deposit,
        NOW and savings accounts                                                27,161,535        7,242,600       12,830,849
    Net increase in time deposits                                               22,952,264       49,055,716        8,747,170
    Net increase (decrease) in short-term borrowings                            14,641,976      (22,957,216)      27,703,887
    Proceeds from long-term borrowings                                          42,738,000       70,000,000        4,500,000
    Repayments of long-term borrowings                                            (379,398)      (6,856,611)      (3,026,335)
    Purchases of treasury stock                                                    (14,754)        (133,001)               -
    Dividends paid                                                              (1,228,016)      (1,054,996)        (831,727)
    Purchase of fractional shares                                                        -           (4,846)               -
    Payment to dissenting shareholders                                                   -         (799,095)               -
- -----------------------------------------------------------------------------------------------------------------------------
        Net cash provided by financing activities                              105,871,607       94,492,551       49,923,844
- -----------------------------------------------------------------------------------------------------------------------------
    Increase (decrease) in cash and due from banks                               4,684,360           81,675        2,018,398
    Cash and due from banks:
        Beginning                                                                7,091,871        7,010,196        4,991,798
- -----------------------------------------------------------------------------------------------------------------------------
        Ending                                                               $  11,776,231    $   7,091,871    $   7,010,196
=============================================================================================================================

 See notes to consolidated financial statements

                                       17

Consolidated Statements of Cash Flows-continued

                                                                                      For the Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                  2001            2000             1999
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                      
 SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
     Cash payments for:
        Interest                                                             $ 20,699,231     $ 17,465,019     $ 11,903,226
============================================================================================================================
        Income taxes                                                         $  2,442,000     $  1,671,210     $  1,498,692
============================================================================================================================

SUPPLEMENTAL SCHEDULE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES
    Other assets acquired in settlement of loans                             $    127,870     $    111,350     $     77,115
============================================================================================================================

    Sales (purchases) of securities pending settlement, net                  $          -     $ (2,026,074)    $  1,336,009
============================================================================================================================

    Acquisition of Greenbrier County branches:
        Net cash and cash equivalents received
            in acquisition of Greenbrier County branches                     $          -     $          -     $(35,071,460)
============================================================================================================================
        Fair value of assets acquired
            (principally loans and premises and equipment)                   $          -     $          -     $ 12,382,196
        Deposits and other liabilities assumed                                          -                -      (47,453,656)
- ----------------------------------------------------------------------------------------------------------------------------
                                                                             $          -     $          -     $(35,071,460)
============================================================================================================================

    Sale of Petersburg Branch:
        Net cash and cash equilvalents
            paid to buyer                                                    $          -     $    820,679     $          -
- ----------------------------------------------------------------------------------------------------------------------------
         Fair value of assets sold:
            Loans                                                                       -        6,173,806                -
            Property & equipment                                                        -          223,755                -
            Other                                                                       -           28,645                -
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                        -        6,426,206                -
         Deposits and other liabilities sold                                            -        7,246,885                -
- ----------------------------------------------------------------------------------------------------------------------------
                                                                             $          -     $    820,679     $          -
============================================================================================================================

See notes to consolidated financial statements

                                       18

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES

     Nature of business: Summit Financial Group, Inc. ("Summit" or "Company") is
a bank holding company with operations in Hardy, Grant, Pendleton, Kanawha and
Greenbrier Counties of West Virginia and in Frederick County, Virginia. Through
its four wholly owned bank subsidiaries, Summit provides loan and deposit
services primarily to individuals and small businesses.

     Basis of financial statement presentation: The accounting and reporting
policies of Summit and its subsidiaries conform to accounting principles
generally accepted in the United States of America and to general practices
within the banking industry.

     Use of estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those estimates.

     Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Summit and its subsidiaries, South Branch
Valley National Bank, Potomac Valley Bank, Capital State Bank, Inc. and
Shenandoah Valley National Bank. All significant accounts and transactions among
these entities have been eliminated.

     Presentation of cash flows: For purposes of reporting cash flows, cash and
due from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from federal funds sold, demand
deposits, NOW accounts, savings accounts and short-term borrowings are reported
on a net basis, since their original maturities are less than three months. Cash
flows from loans and certificates of deposit and other time deposits are
reported net.

     Securities: Debt and equity securities are classified as "held to
maturity", "available for sale" or "trading" according to management's intent.
The appropriate classification is determined at the time of purchase of each
security and re-evaluated at each reporting date.

     Securities held to maturity - Certain debt securities for which the Company
has the positive intent and ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and accretion of discounts.

     Securities available for sale - Securities not classified as "held to
maturity" or as "trading" are classified as "available for sale." Securities
classified as "available for sale" are those securities the Bank intends to hold
for an indefinite period of time, but not necessarily to maturity.

     "Available for sale" securities are reported at estimated fair value net of
unrealized gains or losses,  which are adjusted for applicable income taxes, and
reported as a separate component of shareholders' equity.

     Trading securities - There are no securities classified as "trading" in the
accompanying consolidated financial statements.

     Realized gains and losses on sales of securities are recognized on the
specific identification method. Amortization of premiums and accretion of
discounts are computed using the interest method.

         Loans and allowance for loan losses: Loans are stated at the amount of
unpaid principal, reduced by unearned discount and allowance for loan losses.

     The allowance for loan losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operating expense and reduced by net
charge-offs. The subsidiary banks make continuous credit reviews of the loan
portfolio and consider current economic conditions, historical loan loss
experience, review of specific problem loans and other factors in determining
the adequacy of the allowance for loan losses. Loans are charged against the
allowance for loan losses when management believes that collectibility is
unlikely. While management uses the best information available to make its
evaluation, future adjustments may be necessary if there are significant changes
in conditions.

     A loan is impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due in
accordance with the contractual terms of the specific loan agreement. Impaired
loans, other than certain large groups of smaller-balance homogeneous loans that
are collectively evaluated for impairment, are required to be reported at the
present value of expected future cash flows discounted using the loan's original
effective interest rate or, alternatively, at the loan's observable market
price, or at the fair value of the loan's collateral if the loan is collateral
dependent. The method selected to measure impairment is made on a loan-by-loan
basis, unless foreclosure is deemed to be probable, in which case the fair value
of the collateral method is used.

     Generally, after management's evaluation, loans are placed on non-accrual
status when principal or interest is greater than 90 days past due based upon
the loan's contractual terms. Interest is accrued daily on impaired loans unless
the loan is placed on non-accrual status. Impaired loans are placed on
non-accrual status when the payments of principal and interest are in default
for a period of 90 days, unless the loan is both well-secured and in the process
of collection. Interest on non-accrual loans is recognized primarily using the
cost-recovery method.

     Unearned interest on discounted loans is amortized to income over the life
of the loans, using methods which approximate the interest method. For all other
loans, interest is accrued daily on the outstanding balances.

                                       19

     Loan origination fees and certain direct loan origination costs are
deferred and amortized as adjustments of the related loan yield over its
contractual life.

     Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed primarily by the
straight-line method for premises and equipment over the estimated useful lives
of the assets. The estimated useful lives employed are on average 30 years for
premises and 3 to 10 years for furniture and equipment. Repairs and maintenance
expenditures are charged to operating expenses as incurred. Major improvements
and additions to premises and equipment, including construction period interest
costs, are capitalized. Total interest capitalized during 2000 was approximately
$38,000. No interest was capitalized during 2001 and 1999.

     Other real estate: Other real estate consists primarily of real estate held
for resale which was acquired through foreclosure on loans secured by such real
estate. At the time of acquisition, these properties are recorded at fair value
with any write down being charged to the allowance for loan losses. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value, less cost to
sell. Expenses incurred in connection with operating these properties are
generally insignificant and are charged to operating expenses. Gains and losses
on the sales of these properties are credited or charged to operating income in
the year of the transactions.

     Other real estate acquired through foreclosure with a carrying value of
$81,001 at December 31, 2001 is included in other assets in the accompanying
consolidated balance sheets. There was no other real estate acquired through
foreclosure at December 31, 2000.

     Intangible assets: Goodwill and other intangible assets are amortized on a
straight-line basis over 15 years.

     Income taxes: The consolidated provision for income taxes includes Federal
and state income taxes and is based on pretax net income reported in the
consolidated financial statements, adjusted for transactions that may never
enter into the computation of income taxes payable. Deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. Valuation allowances are
established when deemed necessary to reduce deferred tax assets to the amount
expected to be realized.

     Stock-based  compensation:   In  accordance  with  Statement  of  Financial
Accounting  Standards No. 123,  Accounting  for  Stock-Based  Compensation,  the
Company  has  elected to follow  Accounting  Principles  Board  Opinion  No. 25,
Accounting  for Stock  Issued  to  Employees,  and  related  interpretations  in
accounting for its employee stock options.

     Basic and diluted earnings per share: Basic earnings per share is computed
by dividing net income by the weighted-average number shares of common stock
outstanding, while diluted earnings per share is computed by dividing net income
by the weighted-average number of shares outstanding increased by the number of
shares of common stock which would be issued assuming the exercise of employee
stock options.

     Trust services: Assets held in an agency or fiduciary capacity are not
assets of the Company and are not included in the accompanying consolidated
balance sheets. Trust services income is recognized on the cash basis in
accordance with customary banking practice. Reporting such income on a cash
basis rather than the accrual basis does not have a material effect on net
income.

     Derivative instruments and hedging activities: The Company adopted
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities, as amended by SFAS 138
(collectively SFAS 133) during the year ended December 31, 1999.

     SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction.

     Fair-value hedges - For transactions in which the Company is hedging
changes in fair value of an asset, liability, or a firm commitment, changes in
the fair value of the derivative instrument are generally offset in the income
statement by changes in the hedged item's fair value.

     Cash-flow hedges - For transactions in which the Company is hedging the
variability of cash flows related to a variable-rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative instrument
are reported in other comprehensive income. The gains and losses on the
derivative instrument, which, are reported in comprehensive income are
reclassified to earnings in the periods in which earnings are impacted by the
variability of cash flows of the hedged item.

                                       20

     The ineffective portion of all hedges is recognized in current period
earnings.

     Other derivative instruments used for risk management purposes do not meet
the hedge accounting criteria and, therefore, do not qualify for hedge
accounting. These derivative instruments are accounted for at fair value with
changes in fair value recorded in the income statement.

     During 2001 and 2000, the Company was party to instruments that qualified
for fair-value hedge accounting and other instruments that were held for risk
management purposes that did not qualify for hedge accounting.

     During 1999, the Company was not party to any derivative financial
instruments as defined by SFAS 133.

     Reclassifications:   Certain   accounts  in  the   consolidated   financial
statements for 2000 and 1999, as previously presented, have been reclassified to
conform to current year classifications.

NOTE 2.     SUBSIDIARY BANK MERGER

     On January 18, 2002, South Branch Valley National Bank and Potomac Valley
Bank merged to form Summit Community Bank.

Note 3.     CASH CONCENTRATION

     At December  31, 2001 and 1999,  the  Company had  concentrations  totaling
$8,349,385  and   $10,352,593,   respectively,   with   unaffiliated   financial
institutions  consisting  of due from bank account  balances  and Federal  funds
sold. Deposits with correspondent banks are generally unsecured and have limited
insurance  under  current   banking   insurance   regulations.   There  were  no
concentrations at December 31, 2000.

note 4.  SECURITIES

     The amortized cost, unrealized gains and losses, and estimated fair values
of securities at December 31, 2001 and 2000, are summarized as follows:

                                                                      2001
- -------------------------------------------------------------------------------------------------
                                             Amortized             Unrealized          Estimated
                                                              --------------------
                                                Cost          Gains         Losses    Fair Value
- -------------------------------------------------------------------------------------------------
                                                                        
 Available for Sale
 Taxable:
  U. S. Government agencies
   and corporations                        $  36,987,640   $1,133,062   $   37,477  $  38,083,225
  Mortgage-backed securities                 103,002,225      999,540      801,923    103,199,842
  State and political subdivisions             4,957,792       15,511       20,549      4,952,754
  Corporate debt securities                   21,690,167    1,028,726       31,948     22,686,945
  Federal Reserve Bank stock                     341,300            -            -        341,300
  Federal Home Loan Bank stock                 6,946,800            -            -      6,946,800
  Other equity securities                        306,625            -       53,280        253,345
- -------------------------------------------------------------------------------------------------
        Total taxable                        174,232,549    3,176,839      945,177    176,464,211
- -------------------------------------------------------------------------------------------------
 Tax-exempt:
   State and political subdivisions           25,857,242      279,303      445,895     25,690,650
   Federal Reserve Bank stock                      4,100            -            -          4,100
   Other equity securities                     4,823,109            -       14,973      4,808,136
- -------------------------------------------------------------------------------------------------
          Total tax-exempt                    30,684,451      279,303      460,868     30,502,886
- -------------------------------------------------------------------------------------------------
                Total                      $ 204,917,000   $3,456,142   $1,406,045  $ 206,967,097
=================================================================================================

 Held to maturity
 Tax exempt:
 State and political subdivisions          $     150,280   $    1,410   $      157  $     151,533
=================================================================================================

                                       21

                                                                 2000
- -------------------------------------------------------------------------------------------------
                                             Amortized            Unrealized           Estimated
                                                              -------------------
                                               Cost           Gains        Losses     Fair Value
- -------------------------------------------------------------------------------------------------
                                                                        
 Available for Sale
 Taxable:
 U. S. Treasury securities                  $ 1,499,026    $   2,850    $       -   $   1,501,876
 U. S. Government agencies
   and corporations                          80,847,229      805,826      262,259      81,390,796
 Mortgage-backed securities                  55,129,636      661,521      244,570      55,546,587
 State and political subdivisions             2,979,364       12,245            -       2,991,609
 Corporate debt securities                   15,198,567      292,153          809      15,489,911
 Federal Reserve Bank stock                     236,300            -            -         236,300
 Federal Home Loan Bank stock                 4,375,900            -            -       4,375,900
 Other equity securities                        306,625            -      124,500         182,125
- -------------------------------------------------------------------------------------------------
      Total taxable                         160,572,647    1,774,595      632,138     161,715,104
- -------------------------------------------------------------------------------------------------
 Tax-exempt:
 State and political subdivisions             9,417,015      182,014            -       9,599,029
 Federal Reserve Bank stock                       4,100            -            -           4,100
 Other equity securties                       5,028,978            -        6,801       5,022,177
- -------------------------------------------------------------------------------------------------
      Total tax-exempt                       14,450,093      182,014        6,801      14,625,306
- -------------------------------------------------------------------------------------------------
 Total                                     $ 175,022,740  $1,956,609    $ 638,939   $ 176,340,410
=================================================================================================

 Held to maturity
 Tax exempt:
 State and political subdivisions          $     400,835  $    2,213    $       -   $     403,048
=================================================================================================

     Federal Reserve Bank stock and Federal Home Loan Bank stock are equity
securities which are included in securities available for sale in the
accompanying consolidated financial statements. Such securities are carried at
cost, since they may only be sold back to the respective Federal Reserve Bank or
Federal Home Loan Bank at par value.

     Mortgage-backed obligations having contractual maturities ranging from 1 to
30 years, are reflected in the following maturity distribution schedules based
on their anticipated average life to maturity, which ranges from 1 to 14 years.
Accordingly, discounts are accreted and premiums are amortized over the
anticipated average life to maturity of the specific obligation.

     The maturities, amortized cost and estimated fair values of securities at
December 31, 2001, are summarized as follows:

                                             Available for Sale
 --------------------------------------------------------------------
                                         Amortized       Estimated
                                           Cost          Fair Value
 --------------------------------------------------------------------

 Due in one year or less                  $50,432,271    $ 50,790,830
 Due from one to five years                96,631,164      98,579,681
 Due from five to ten years                24,579,551      24,840,460
 Due after ten years                       22,357,959      21,902,444
 Equity securities                         10,916,055      10,853,682
 --------------------------------------------------------------------
                Total                    $204,917,000    $206,967,097
=====================================================================

                                              Held to Maturity
 --------------------------------------------------------------------
                                         Amortized        Estimated
                                           Cost           Fair Value
 --------------------------------------------------------------------

 Due in one year or less                    $ 150,280       $ 151,533
 Due from one to five years                         -               -
 Due from five to ten years                         -               -
 Due after ten years                                -               -
 Equity securities                                  -               -
 --------------------------------------------------------------------
                Total                       $ 150,280       $ 151,533
=====================================================================

                                       22

     The proceeds  from sales,  calls and  maturities of  securities,  including
principal payments received on mortgage-backed obligations and the related gross
gains and losses realized are as follows:

                                                 Proceeds from                      Gross Realized
- ------------------------------------------------------------------------------------------------------
            Years Ended                            Calls and      Principal
           December 31,               Sales        Maturities      Payments       Gains       Losses
- ------------------------------------------------------------------------------------------------------
                                                                               
 2001
 Securities available for sale     $ 40,206,987   $ 56,133,634   $ 26,554,708   $ 459,653     $ 80,605
 Securities held to maturity                  -        250,000              -           -            -
- ------------------------------------------------------------------------------------------------------
                                   $ 40,206,987   $ 56,383,634   $ 26,554,708   $ 459,653     $ 80,605
======================================================================================================
 2000
 Securities available for sale     $ 11,506,633   $ 2,930,109     $ 4,670,845     $ 2,364            -
 Securities held to maturity                  -       140,000               -           -            -
- ------------------------------------------------------------------------------------------------------
                                   $ 11,506,633   $ 3,070,109     $ 4,670,845     $ 2,364          $ -
======================================================================================================
 1999
 Securities available for sale     $ 4,062,879    $ 13,706,762    $ 4,990,386       $ 828    $ 236,773
 Securities held to maturity                 -         349,871        384,326           -            -
- ------------------------------------------------------------------------------------------------------
                                   $ 4,062,879    $ 14,056,633    $ 5,374,712       $ 828    $ 236,773
======================================================================================================

     At December 31, 2001 and 2000, securities with amortized costs of
$50,971,518 and $39,856,005, respectively, with estimated fair values of
$52,179,931 and $40,062,343, respectively, were pledged to secure public
deposits, and for other purposes required or permitted by law.

NOTE 5.     LOANS

     Loans are summarized as follows:

                                          2001             2000
- ------------------------------------------------------------------
 Commercial                           $ 26,464,421    $ 26,304,675
 Commercial real estate                121,576,437      81,809,039
 Residential - construction              2,393,754       2,729,408
 Residential - mortgage                149,050,426     124,326,161
 Consumer                               41,508,960      37,586,562
 Other                                   7,263,448       2,000,900
- ------------------------------------------------------------------
      Total loans                      348,257,446     274,756,745
 Less unearned income                      731,769         603,317
- ------------------------------------------------------------------
 Total loans net of unearned income    347,525,677     274,153,428
 Less allowance for loan losses          3,110,248       2,570,776
- ------------------------------------------------------------------
       Loans, net                     $344,415,429   $ 271,582,652
==================================================================

     Included in the net balance of loans are non-accrual loans amounting to
$787,966 and $567,795 at December 31, 2001 and 2000, respectively. If interest
on non-accrual loans had been accrued, such income would have approximated
$41,067, $14,745 and $33,121 for the years ended December 31, 2001, 2000 and
1999, respectively.

     The following presents loan maturities at December 31, 2001.
                                             After 1
                              Within        but within          After
                               1Year          5 Years          5 Years
- ------------------------------------------------------------------------
Commercial                 $ 11,783,210    $  7,653,523    $   7,027,688
Commercial real estate       13,328,020      15,677,580       92,570,837
Residential-construction              -               -        2,393,754
Residential-mortgage          8,988,193      12,253,872      127,808,361
Consumer                      4,914,128      29,146,619        7,448,213
Other                         1,761,219       2,127,702        3,374,527
- ------------------------------------------------------------------------
                           $ 40,774,770    $ 66,859,296    $ 240,623,380
========================================================================

Loans due after one year with:
    Variable rates                        $  99,752,693
    Fixed rates                             207,729,983
                                          -------------
                                          $ 307,482,676
                                          =============

     Concentrations of credit risk: The Company grants commercial, residential
and consumer loans to customers primarily located in the Eastern Panhandle and
South Central counties of West Virginia, and the Northern counties of Virginia.
Although the Company strives to maintain a diverse loan portfolio, exposure to
credit losses can be adversely impacted by downturns in local economic and
employment conditions. Major employment within the Company's market area is
diverse, but primarily includes government, health care, education, poultry and
various professional, financial and related service industries.

                                       23

     The Company evaluates the credit worthiness of each of its customers on a
case-by-case basis and the amount of collateral it obtains is based upon
management's credit evaluation.

     Loans to related parties: Summit and its subsidiaries have had, and may be
expected to have in the future, banking transactions in the ordinary course of
business with directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders (commonly referred
to as related parties), all of which have been, in the opinion of management, on
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with others.

     The following presents the activity with respect to related party loans
aggregating $60,000 or more to any one related party (other changes represent
additions to and changes in director and executive officer status):

                                          2001           2000
- ----------------------------------------------------------------
  Balance, beginning                 $ 10,277,819   $ 11,136,366
      Additions                         4,048,855        998,305
      Amounts collected                (4,092,783)    (2,134,963)
      Other changes, net                  437,498        278,111
- ----------------------------------------------------------------
  Balance, ending                    $ 10,671,389   $ 10,277,819
================================================================

NOTE 6.     ALLOWANCE FOR LOAN
               LOSSES

     An analysis of the allowance for loan losses for the years ended December
31, 2001, 2000 and 1999 is as follows:

                                          2001         2000          1999
- ----------------------------------------------------------------------------

  Balance, beginning of year         $ 2,570,776   $ 2,231,555   $ 2,113,201
  Losses:
      Commercial                          38,624             -       164,783
      Commercial real estate              69,233             -             -
      Residential - mortgage              46,977        62,839        31,892
      Consumer                           190,804       174,719       144,099
      Other                               75,643        48,521        37,407
- ----------------------------------------------------------------------------
                  Total                  421,281       286,079       378,181
- ----------------------------------------------------------------------------
  Recoveries:
      Commercial                           2,672         1,136        40,115
      Commercial real estate               7,500           895             -
      Residential - mortgage                 728         1,603         9,820
      Consumer                            98,940        53,165        70,998
      Other                               20,913        11,001         5,602
- ----------------------------------------------------------------------------
                  Total                  130,753        67,800       126,535
- ----------------------------------------------------------------------------
  Net losses                             290,528       218,279       251,646
  Provision for loan losses              830,000       557,500       370,000
- ----------------------------------------------------------------------------
  Balance, end of year               $ 3,110,248   $ 2,570,776   $ 2,231,555
============================================================================

     The Company's total recorded investment in impaired loans at December 31,
2001 and 2000 approximated $568,001 and $982,539, respectively, for which the
related allowance for loan losses determined in accordance with generally
accepted accounting principles approximated $50,000 and $250,000, respectively.
The Company's average investment in such loans approximated $579,884 and
$1,010,355 for the years ended December 31, 2001 and 2000, respectively.
Impaired loans at December 31, 2001 and 2000 included loans that were collateral
dependent, for which the fair values of the loans' collateral were used to
measure impairment, and a loan that was not collateral dependent, for which the
impairment was measured based on management's best estimate of discounted cash
flows.

         For purposes of evaluating impairment, the Company considers groups of
smaller-balance, homogeneous loans to include: mortgage loans secured by
residential property, other than those which significantly exceed the Company's
typical residential mortgage loan amount (currently those in excess of
$100,000); small balance commercial loans (currently those less than $50,000);
and consumer loans, exclusive of those loans in excess of $50,000.

         For the years ended December 31, 2001 and 2000, the Company recognized
approximately $21,380 and $111,025, respectively, in interest income on impaired
loans. Using a cash-basis method of accounting, the Company would have
recognized approximately the same amount of interest income on such loans.

NOTE 7.     PREMISES AND EQUIPMENT

     The major categories of premises and equipment and accumulated depreciation
at December 31, 2001 and 2000, are summarized as follows:

                                            2001          2000
- -----------------------------------------------------------------
 Land                                   $ 2,753,699   $ 2,495,920
 Buildings and improvements               9,301,665     9,152,420
 Furniture and equipment                  6,428,818     5,333,525
- -----------------------------------------------------------------
                                         18,484,182    16,981,865
 Less accumulated depreciation            5,572,675     4,735,044
- -----------------------------------------------------------------
    Premises and equipment, net        $ 12,911,507  $ 12,246,821
=================================================================

     Depreciation expense for the years ended December 31, 2001, 2000 and 1999
totaled $899,554, $731,073 and $584,212, respectively.

                                       24

NOTE 8.     DEPOSITS

     The  following  is a summary of  interest  bearing  deposits  by type as of
December 31, 2001 and 2000:

                                         2001           2000
- ----------------------------------------------------------------
 Demand deposits, interest bearing   $ 81,509,961   $ 69,038,854
 Savings deposits                      43,765,947     37,729,798
 Certificates of deposit              211,116,608    190,986,834
 Individual Retirement Accounts        21,126,774     18,174,955
- ----------------------------------------------------------------
        Total                        $357,519,290  $ 315,930,441
================================================================

     Time certificates of deposit and Individual Retirement Account's (IRA's) in
denominations of $100,000 or more totaled $56,924,692 and $50,840,006 at
December 31, 2001 and 2000, respectively. Interest paid on time certificates of
deposit and IRA's in denominations of $100,000 or more were $3,057,697,
$2,623,640 and $1,823,421 for the years ended December 31, 2001, 2000 and 1999,
respectively.

     The following is a summary of the maturity distribution of certificates of
deposit and IRA's in denominations of $100,000 or more as of December 31, 2001:

                                     Amount      Percent
- --------------------------------------------------------
 Three months or less            $ 16,290,933      28.6%
 Three through six months           9,439,883      16.6%
 Six through twelve months         13,354,736      23.5%
 Over twelve months                17,839,140      31.3%
- --------------------------------------------------------
         Total                   $ 56,924,692     100.0%
========================================================

     A summary of the scheduled  maturities for all time deposits as of December
31, 2001, follows:

             2002                $ 151,412,648
             2003                   45,537,154
             2004                   29,092,782
             2005                    1,853,190
             2006                    3,633,347
          Thereafter                   714,261
- ----------------------------------------------
                                 $ 232,243,382
==============================================

     At December 31, 2001, deposits of related parties including directors,
executive officers, and their related interests of the Company approximated
$9,100,000.

NOTE 9.     BORROWED FUNDS

     Short-term  borrowings:  A summary of  short-term  borrowings  is presented
below:

                                                      2001
- -------------------------------------------------------------------------------
                                                                 Federal Funds
                                    Short-term                      Purchased
                                       FHLB        Repurchase       and Lines
                                     Advances      Agreements       of Credit
- -------------------------------------------------------------------------------
 Balance at December 31            $ 14,778,200   $ 8,213,590      $ 1,041,000
 Average balance outstanding
   for the year                       3,069,203     7,351,836        1,458,355
 Maximum balance outstanding
     at any month end                14,778,200     9,080,068        4,298,000
 Weighted average interest
      rate for the year                   4.42%         3.30%            5.10%
 Weighted average interest
       rate for balances
     outstanding at December 31           1.99%         1.83%            4.14%

                                                   2000
- ----------------------------------------------------------------------------
                                                               Federal Funds
                                   Short-term                     Purchased
                                      FHLB         Repurchase     and Lines
                                    Advances       Agreements     of Credit
- ----------------------------------------------------------------------------
 Balance at December 31            $ 1,950,900    $ 6,187,914    $ 1,252,000
 Average balance outstanding
   for the year                     37,489,925      7,450,110      3,922,918
 Maximum balance outstanding
     at any month end               72,702,003     12,758,541      1,252,000
 Weighted average interest
      rate for the year                  7.13%          5.13%          7.03%
 Weighted average interest
       rate for balances
     outstanding at December 31          6.63%          4.95%          7.00%

     Federal funds purchased and repurchase agreements mature the next business
day. The securities underlying the repurchase agreements are under the Company's
control and secure the total outstanding daily balances.

     Summit's subsidiary banks are members of the Federal Home Loan Bank
("FHLB"). Membership in the FHLB makes available short-term and long-term
advances under collateralized borrowing arrangements with each subsidiary bank.
All FHLB advances are collateralized primarily by similar amounts of residential
mortgage loans, certain commercial loans, mortgage backed securities and
securities of U. S. Government agencies and corporations.

                                       25

     At December 31, 2001,  Summit's  subsidiary  banks had combined  additional
borrowings  availability of $70,576,000 from the FHLB.  Short-term FHLB advances
are granted for terms of 1 to 365 days and bear  interest at a fixed or variable
rate set at the time of the funding request.

     Long-term borrowings: The Company's long-term borrowings of $123,444,531
and $81,085,929 as of December 31, 2001 and 2000, respectively, consisted
primarily of advances from the FHLB. These borrowings bear both fixed and
variable interest rates and mature in varying amounts through the year 2016. The
average interest rate paid on long-term borrowings during 2001 and 2000
approximated 5.60% and 5.68%, respectively.

     A summary of the maturities of all long-term borrowings for the next five
years and thereafter is as follows:

       Year Ending
       December 31,                   Amount
- -------------------------------------------------
           2002                       $ 1,247,995
           2003                         4,526,221
           2004                        15,467,559
           2005                        23,436,726
           2006                         7,217,124
        Thereafter                     71,548,906
- -------------------------------------------------
                                    $ 123,444,531
=================================================

NOTE 10.     INCOME TAXES

     The  components  of applicable  income tax expense  (benefit) for the years
ended December 31, 2001, 2000 and 1999, are as follows:

                             2001           2000          1999
- -----------------------------------------------------------------
 Current
     Federal             $ 2,458,645    $ 1,446,490  $ 1,362,370
     State                   276,030        204,270      154,585
- -----------------------------------------------------------------
                           2,734,675      1,650,760    1,516,955
- -----------------------------------------------------------------
 Deferred
     Federal                (261,060)      (107,568)      15,892
     State                   (16,480)           191       37,103
- -----------------------------------------------------------------
                            (277,540)      (107,377)      52,995
- -----------------------------------------------------------------
        Total            $ 2,457,135    $ 1,543,383  $ 1,569,950
================================================================

     Reconciliation between the amount of reported income tax expense and the
amount computed by multiplying the statutory income tax rates by book pretax
income for the years ended December 31, 2001, 2000 and 1999 is as follows:

                                       2001                    2000                    1999
- ---------------------------------------------------------------------------------------------------
                                Amount      Percent     Amount      Percent     Amount      Percent
- ---------------------------------------------------------------------------------------------------
                                                                              
 Computed
 tax at applicable
 statutory rate                $ 2,626,023       34    $ 1,629,723       34    $ 1,568,447      34

 Increase (decrease)
 in taxes
 resulting from:
  Tax-exempt interest
    and dividends, net            (280,989)      (4)      (216,212)      (5)      (425,763)     (9)

  State income
     taxes, net of
      Federal income
       tax benefit                 182,180        2        134,818        3        140,354       3

 Change in deferred tax
  valuation allowance                    -        -              -        -        271,733       6

 Nondeductible amortization
 of goodwill                        41,155        1         26,568        1         40,763       1

 Other, net                       (111,234)      (1)       (31,514)      (1)       (25,584)     (1)
- ---------------------------------------------------------------------------------------------------
 Applicable income taxes       $ 2,457,135       32    $ 1,543,383       32    $ 1,569,950      34
===================================================================================================

                                       26

     Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured for tax purposes. Deferred tax assets and liabilities
represent the future tax return consequences of temporary differences, which
will either be taxable or deductible when the related assets and liabilities are
recovered or settled. Valuation allowances are established when deemed necessary
to reduce deferred tax assets to the amount expected to be realized.

     The tax effects of temporary differences, which give rise to the Company's
deferred tax assets and liabilities as of December 31, 2001 and 2000, are as
follows:

                                                    2001           2000
- --------------------------------------------------------------------------
 Deferred tax assets
     Allowance for loan losses                   $ 922,437      $ 704,251
     Deferred compensation                         178,529        156,095
     Other deferred costs and accrued expenses     210,287         78,771
- --------------------------------------------------------------------------
                                                 1,311,253        939,117
- --------------------------------------------------------------------------
 Deferred tax liabilities
     Depreciation                                  119,922         63,208
     Accretion on tax-exempt securities             13,680         12,756
     Purchase accounting adjustments               147,952        145,387
     Net unrealized gain on securities and
         other financial instruments               743,071        456,163
- --------------------------------------------------------------------------
                                                 1,024,625        677,514
- --------------------------------------------------------------------------
          Net deferred tax assets                $ 286,628      $ 261,603
=========================================================================

     The income tax expense (benefit) on realized  securities gains (losses) was
$144,038,  $910 and  $(90,839) for the years ended  December 31, 2001,  2000 and
1999, respectively.

NOTE 11.     EMPLOYEE BENEFITS

     Retirement Plans: The Company has defined contribution profit-sharing plans
with 401(k) provisions covering substantially all employees. Contributions to
the plans are at the discretion of the Board of Directors. Contributions made to
the plans and charged to expense were $185,694, $150,777 and $178,770 for the
years ended December 31, 2001, 2000 and 1999, respectively.

     Employee Stock Ownership Plan: The Company has an Employee Stock Ownership
Plan ("ESOP") which enables eligible employees to acquire shares of the
Company's common stock. The cost of the ESOP is borne by the Company through
annual contributions to an Employee Stock Ownership Trust in amounts determined
by the Board of Directors.

     The expense recognized by the Company is based on cash contributed or
committed to be contributed by the Company to the ESOP during the year.
Contributions to the ESOP for the years ended December 31, 2001, 2000 and 1999
were $162,897, $137,588 and $66,615, respectively. Dividends paid by the Company
to the ESOP are reported as a reduction to retained earnings. The ESOP owned
35,450 shares of the Company's common stock at December 31, 2001, all of which
were purchased at the prevailing market price and are considered outstanding for
earnings per share computations.

     The trustees of the Retirement Plans and ESOP are also members of the
Company's Board of Directors.

     Directors Deferred Compensation Plan: The Company's subsidiary banks, South
Branch Valley National Bank, Capital State Bank, and Shenandoah Valley National
Bank as well as the Company itself, have established non-qualified deferred
compensation plans for directors who voluntarily elect to defer payment of
retainer, meeting and committee fees earned. The liability for deferred
directors' compensation at December 31, 2001 and 2000, approximated $332,811 and
$284,026, respectively, which is included in other liabilities in the
accompanying consolidated balance sheets.

     Supplemental Executive Retirement Plan: In May 1999, South Branch Valley
National Bank entered into a non-qualified Supplemental Executive Retirement
Plan ("SERP") with certain senior officers which provides participating officers
with an income benefit payable at retirement age or death. During 2000 Capital
State Bank and Shenandoah Valley National Bank adopted similar plans. The
liabilities accrued for the SERP's at December 31, 2001 and 2000 were $144,818
and $66,368 respectively, which are included in other liabilities. In addition,
the subsidiary banks have purchased certain life insurance contracts to fund the
liabilities arising under these plan. At December 31, 2001 and 2000, the cash
surrender value of these insurance contracts was $2,497,306 and $2,370,708,
respectively, and is included in other assets in the accompanying consolidated
balance sheets.

     Stock Option Plan: Summit has an Officer Stock Option Plan, which provides
for the granting of stock options for up to 240,000 shares of common stock to
key Company officers. Each option granted under the plan vests according to a
schedule designated at the grant date and shall have a term of no more than 10
years following the vesting date. Also, the option price per share shall not be
less than the fair market value of Summit's common stock on the date of grant.
Accordingly, no compensation expense is recognized for options granted under the
Plan.

                                       27

     The following pro forma disclosures present for 2001, 2000 and 1999,
Summit's reported net income and basic and diluted earnings per share had the
Company recognized compensation expense for its Officer Stock Option Plan based
on the grant date fair values of the options (the fair value method described in
Statement of Financial Accounting Standards No. 123).

                                                      2001
- ---------------------------------------------------------------------
                                                As             Pro
                                             Reported         Forma
- ---------------------------------------------------------------------

 Net income (in thousands)                   $ 5,266         $ 5,241
 Basic earnings per share                    $  3.00         $  2.99
 Diluted earnings per share                  $  3.00         $  2.49

                                                      2000
- ---------------------------------------------------------------------
                                               As              Pro
                                            Reported          Forma
- ---------------------------------------------------------------------

 Net income (in thousands)                   $ 3,250         $ 3,222
 Basic earnings per share                    $  1.85         $  1.83
 Diluted earnings per share                  $  1.85         $  1.83

                                                      1999
- ---------------------------------------------------------------------
                                            As             Pro
                                         Reported         Forma
- ---------------------------------------------------------------------

 Net income (in thousands)                   $ 3,043         $ 3,017
 Basic earnings per share                    $  1.69         $  1.69
 Diluted earnings per share                  $  1.69         $  1.69

     For purposes of computing the above pro forma amounts, Summit estimated the
fair value of the options at the date of grant using a Black-Scholes option
pricing model using the following weighted-average assumptions for grants in
each respective year: risk free interest rates of 4.50% for 2001, 6.50% for 2000
and 5.25% for 1999; dividend yields of 2.50% for 2001, 3.25% for 2000 and 2.00%
for 1999; volatility factors of the expected market price of Summit's common
stock of 20 for 2001, 2000 and 1999; and an expected option life of 8 years for
2001 and 10 years for 2000 and 1999. The weighted-average grant date fair value
of options granted during 2001, 2000 and 1999 was $5.61, $5.04 and $6.43,
respectively. For purposes of the pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.

     A summary of activity in Summit's  Officer  Stock  Option Plan during 1999,
2001 and 2001 is as follows:

- ---------------------------------------------------------------------
                                                            Weighted-
                                                             Average
                                                             Exercise
                                                Options       Price
- ---------------------------------------------------------------------
 Outstanding, January 1, 1999                         -       $     -
     Granted                                     15,000         20.83
     Exercised                                        -             -
     Forfeited                                        -             -
- ---------------------------------------------------------------------
 Outstanding, December 31, 1999                  15,000       $ 20.83
     Granted                                      9,000         18.50
     Exercised                                        -             -
     Forfeited                                        -             -
- ---------------------------------------------------------------------
 Outstanding, December 31, 2000                  24,000       $ 19.96
     Granted                                      8,500         23.80
     Exercised                                        -             -
     Forfeited                                        -             -
- ---------------------------------------------------------------------
 Outstanding, December 31, 2001                  32,500       $ 20.96
=====================================================================

 Exercisable Options:
    December 31, 2001                            12,600       $ 20.16
    December 31, 2000                             7,800       $ 20.29
    December 31, 1999                             3,000       $ 20.83
=====================================================================

NOTE 12.     COMMITMENTS AND
                CONTINGENCIES

     Financial instruments with off-balance sheet risk: The Company is a party
of certain financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. Such financial
instruments consist solely of commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the statement of financial position. The contract
amounts of these instruments reflect the extent of involvement the Company has
in this class of financial instruments. The Company's total contract amount of
commitments to extend credit at December 31, 2001 and 2000, approximated
$48,809,926 and $27,776,257, respectively.

     The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.

                                       28

     Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation. Collateral held varies but may include accounts receivable,
inventory, equipment or real estate.

     Litigation: The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of counsel, the outcome of these
matters will not have a significant adverse effect on the consolidated financial
statements.

     Employment Agreements: The Company has various employment agreements with
its chief executive officer and certain other executive officers. These
agreements contain change in control provisions that would entitle the officers
to receive compensation in the event there is a change in control in the Company
(as defined) and a termination of their employment without cause (as defined).

Note 13. RESTRICTIONS ON CAPITAL AND DIVIDENDS

     The primary source of funds for the dividends paid by Summit is dividends
received from its subsidiary banks. Dividends paid by the subsidiary banks are
subject to restrictions by banking regulations. The most restrictive provision
requires approval by their regulatory agencies if dividends declared in any year
exceed the year's net income, as defined, plus the net retained profits of the
two preceding years.

     The Company and its subsidiaries are subject to various regulatory capital
requirements administered by the banking regulatory agencies. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and each of its subsidiaries must meet specific capital guidelines
that involve quantitative measures of the Company's and its subsidiaries'
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company and each of its subsidiaries'
capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.

     Quantitative measures established by regulation to ensure capital adequacy
require the Company and each of its subsidiaries to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2001, that the
Company and each of its subsidiaries met all capital adequacy requirements to
which they were subject.

     The most recent notifications from the banking regulatory agencies
categorized the Company and each of its subsidiary banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Company and each of its subsidiaries must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table below.

     Summit's and its subsidiary banks', South Branch Valley National Bank's
("SBVNB"), Capital State Bank, Inc.'s ("CSB"), Shenandoah Valley National Bank's
("SVNB") and Potomac Valley Bank's ("PVB") actual capital amounts and ratios are
also presented in the following table (dollar amounts in thousands).

                                       29

                                                                                               To be Well Capitalized
                                                                        Minimum Required       under Prompt Corrective
                                                  Actual               Regulatory Capital         Action Provisions
                                          ---------------------      ---------------------     -----------------------
                                           Amount        Ratio        Amount        Ratio       Amount        Ratio
                                          --------     --------      --------      -------     ---------     -------
                                                                                             
 As of December 31, 2001
 Total Capital (to risk weighted assets)
     Summit                               $ 42,695        11.3%      $ 30,173        8.0%       $ 37,716       10.0%
     SBVNB                                  14,014        10.4%        10,811        8.0%         13,514       10.0%
     CSB                                     9,407        10.4%         7,208        8.0%          9,011       10.0%
     SVNB                                   10,386        13.7%         6,065        8.0%          7,581       10.0%
     PVB                                     9,273        12.1%         6,121        8.0%          7,651       10.0%
 Tier I Capital (to risk weighted assets)
     Summit                                 39,585        10.5%        15,080        4.0%         22,620        6.0%
     SBVNB                                  12,564         9.3%         5,404        4.0%          8,106        6.0%
     CSB                                     8,754         9.7%         3,602        4.0%          5,404        6.0%
     SVNB                                    9,978        13.2%         3,033        4.0%          4,549        6.0%
     PVB                                     8,674        11.3%         3,062        4.0%          4,593        6.0%
 Tier I Capital (to average assets)
     Summit                                 39,585         7.1%        16,797        3.0%         27,995        5.0%
     SBVNB                                  12,564         7.0%         5,369        3.0%          8,949        5.0%
     CSB                                     8,754         6.7%         3,902        3.0%          6,504        5.0%
     SVNB                                    9,978         8.1%         3,709        3.0%          6,182        5.0%
     PVB                                     8,674         7.0%         3,739        3.0%          6,231        5.0%

 As of December 31, 2000
 Total Capital (to risk weighted assets)
     Summit                               $ 37,900        12.8%      $ 23,688        8.0%       $ 29,586       10.0%
     SBVNB                                  12,751        10.6%         9,623        8.0%         12,029       10.0%
     CSB                                     7,679        11.0%         5,585        8.0%          6,981       10.0%
     SVNB                                    6,521        17.1%         3,051        8.0%          3,813       10.0%
     PVB                                     8,483        13.0%         5,220        8.0%          6,525       10.0%
 Tier I Capital (to risk weighted assets)
     Summit                                 35,329        11.9%        11,875        4.0%         17,813        6.0%
     SBVNB                                  11,460         9.5%         4,825        4.0%          7,238        6.0%
     CSB                                     7,135        10.2%         2,798        4.0%          4,197        6.0%
     SVNB                                    6,405        16.8%         1,525        4.0%          2,288        6.0%
     PVB                                     7,863        12.0%         2,621        4.0%          3,932        6.0%
 Tier I Capital (to average assets)
     Summit                                 35,329         8.2%        12,925        3.0%         21,542        5.0%
     SBVNB                                  11,460         7.1%         4,842        3.0%          8,070        5.0%
     CSB                                     7,135         6.2%         3,452        3.0%          5,754        5.0%
     SVNB                                    6,405         8.3%         2,315        3.0%          3,858        5.0%
     PVB                                     7,863         7.1%         3,322        3.0%          5,537        5.0%

                                       30

NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS

     During 2000 the Company purchased interest rate caps (caps) with a notional
amount of $50 million. These caps are used to offset the Company's overall
interest rate risk relative to rising interest rates. These interest rate caps
do not meet the criteria for hedge accounting and are marked to market at the
end of each period with changes in market value being charged to earnings. The
total amount paid for these caps was $158,500 and the cumulative market
adjustments, and the amount charged to earnings in 2001 and 2000 were $34,054
and $124,446, respectively.

     During 2000 the Company entered into an interest rate swap whereby the
Company will pay a variable rate of LIBOR and receive a fixed rate of 7.18% with
a notional amount of $2,000,000 and a term of three years, expiring June 4,
2003. This instrument was used to hedge the fair value of certain certificates
of deposit issued by the subsidiary banks. The swap agreement and the related
hedged certificates of deposit are marked to market at the end of each reporting
period and the net impact of the adjustments, the ineffective portion of the
hedge, is reflected in other income in the accompanying financial statements.
The net of the amounts earned on the fixed rate leg of the swap and amounts due
on the variable rate leg of the swap are reflected as an adjustment in the
Company's cost of funds. During 2001 and 2000, there was no ineffectiveness of
the hedge transaction reflected in earnings.

NOTE 15.     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following summarizes the methods and significant assumptions used by
the Company in estimating its fair value disclosures for financial instruments.

     Cash and due from banks: The carrying values of cash and due from banks
approximate their estimated fair value.

     Interest bearing deposits with other banks: The fair values of interest
bearing deposits with other banks are estimated by discounting scheduled future
receipts of principal and interest at the current rates offered on similar
instruments with similar remaining maturities.

     Federal funds sold: The carrying values of Federal funds sold approximate
their estimated fair values.

     Securities: Estimated fair values of securities are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable securities.

     Loans: The estimated fair values for loans are computed based on scheduled
future cash flows of principal and interest, discounted at interest rates
currently offered for loans with similar terms to borrowers of similar credit
quality. No prepayments of principal are assumed.

     Accrued interest receivable and payable: The carrying values of accrued
interest receivable and payable approximate their estimated fair values.

     Deposits: The estimated fair values of demand deposits (i.e. non interest
bearing checking NOW, Super NOW, money market and savings accounts) and other
variable rate deposits approximate their carrying values. Fair values of fixed
maturity deposits are estimated using a discounted cash flow methodology at
rates currently offered for deposits with similar remaining maturities. Any
intangible value of long-term relationships with depositors is not considered in
estimating the fair values disclosed.

     Short-term borrowings: The carrying values of short-term borrowings
approximate their estimated fair values.

     Long-term borrowings: The fair values of long-term borrowings are estimated
by discounting scheduled future payments of principal and interest at current
rates available on borrowings with similar terms.

     Off-balance sheet instruments: The fair values of commitments to extend
credit and standby letters of credit are estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present credit standing of the counter parties.
The amounts of fees currently charged on commitments and standby letters of
credit are deemed insignificant, and therefore, the estimated fair values and
carrying values are not shown below.

                                       31

     The carrying values and estimated fair values of the Company's financial
instruments are summarized below:

                                               2001                          2000
                                   ---------------------------   ---------------------------
                                                    Estimated                     Estimated
                                     Carrying         Fair         Carrying         Fair
                                       Cost           Value          Cost           Value
                                   ------------   ------------   ------------   ------------
                                                                    
 Financial assets:
    Cash and due from banks        $ 11,776,231   $ 11,776,231   $  7,091,877   $  7,091,871
    Interest bearing deposits,
        other banks                   2,261,826      2,261,826        473,000        473,000
    Federal funds sold                1,848,129      1,848,129      1,811,000      1,811,000
   Securities available for sale    206,967,097    206,967,097    176,340,140    176,340,410
    Securities held to maturity         150,280        151,533        400,835        403,048
    Loans                           344,415,429    349,767,552    271,582,652    264,244,272
    Accrued interest receivable       3,874,002      3,874,002      3,760,301      3,760,701
                                   ---------------------------------------------------------
                                   $571,292,994   $576,646,370   $461,459,805   $454,124,302
                                   =========================================================
Financial liabilities:
    Deposits                       $396,204,978   $398,497,103   $345,961,850   $346,779,838
    Short-term borrowings            24,032,790     24,032,790      9,390,814      9,390,814
    Long-term borrowings            123,444,531    128,123,663     81,085,929     86,626,954
    Accrued interest payable          1,848,985      1,848,985      2,105,533      2,105,533
                                   ---------------------------------------------------------
                                   $545,531,284   $552,502,541   $438,544,126   $444,903,139
                                   =========================================================

NOTE 16. STOCK SPLIT

     On July 27, 2001, Summit's Board of Directors authorized a 2-for-1 split of
the Company's common stock to be effected in the form of a 100% stock dividend
that was distributed on August 20, 2001 to shareholders of record as of August
10, 2001. Accordingly, all share and per share amounts included in the
accompanying consolidated financial statements have been restated to give effect
to the stock split.

NOTE 17. RECENT ACCOUNTING PRONOUNCEMENTS

     Business combinations: In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 141,
Business Combinations (SFAS 141). SFAS 141requires all business combinations to
be accounted for by the purchase method and eliminates the pooling-of-interests
method of accounting for business combinations initiated after June 30, 2001.

     While SFAS 141 will affect how future business combinations, if undertaken,
are accounted for and disclosed in the consolidated financial statements, the
issuance of the new guidance had no effect on Summit's results of operation,
financial position, or liquidity during 2001.

     Goodwill and other intangible assets: In conjunction with the issuance of
the new guidance for business combinations, the FASB also issued SFAS 142,
Goodwill and Other Intangible Assets, which addresses the accounting and
reporting for acquired goodwill and other intangible assets.

     Under the provisions of SFAS 142, goodwill and certain other intangible
assets which do not possess finite useful lives will no longer be amortized into
net income over an estimated life, but rather will be tested at least annually
for impairment based on specific guidance provided in the new standard.
Intangible assets determined to have finite lives will continue to be amortized
over their estimated useful lives and also continue to be subject to impairment
testing.

     The provisions of SFAS 142 were adopted by Summit as required effective
January 1, 2002. Application of the nonamortization provisions of the statement
is expected to reduce other expenses and increase net income by approximately
$131,000, or $0.07 per diluted share, in 2002 as compared to 2001. SFAS 142, as
part of its adoption provisions, requires a transitional impairment test be
applied to all goodwill and other indefinite-lived intangible assets within the
first half of 2002 and any resulting impairment loss be reported as a change in
accounting principle. Management does not expect an impairment loss to be
recorded in 2002 as a result of this test.

                                       32

     Asset Retirement Obligations: In August 2001, the FASB issued SFAS 143,
Accounting for Asset Retirement Obligations. SFAS 143 requires an entity to
record a liability for an obligation associated with the retirement of an asset
at the time the liability is incurred by capitalizing the cost as part of the
carrying value of the related asset and depreciating it over the remaining
useful life of that asset. The standard is effective for the Company beginning
January 1, 2003, and its adoption is not expected to have a material impact on
its results of operations, financial position, or liquidity.

     Accounting for Long-Lived Assets: SFAS 144, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of, was issued in
October 2001 and addresses how and when to measure impairment on long-lived
assets and how to account for long-lived assets that an entity plans to dispose
of either through sale, abandonment, exchange, or distribution to owners. The
new provisions supersede SFAS 121, which addressed asset impairment, and certain
provisions of APB Opinion 30 related to reporting the effects of the disposal of
a business segment and requires expected future operating losses from
discontinued operations to be recorded in the period in which the losses are
incurred rather than the measurement date. Under SFAS 144, more dispositions may
qualify for discontinued operations treatment in the income statement. The
provisions of SFAS 144 became effective for the Company January 1, 2002 and are
not expected to have a material impact on its results of operations, financial
position, or liquidity.

NOTE 18. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

     The investment of the Company in its wholly-owned subsidiaries is presented
on the  equity  method of  accounting.  Information  relative  to the  Company's
balance  sheets at December  31, 2001 and 2000,  and the related  statements  of
income and cash flows for the years ended December 31, 2001,  2000 and 1999, are
presented as follows:

                                       33

 Balance Sheets                                             December 31,
- --------------------------------------------------------------------------------
                                                       2001             2000
- --------------------------------------------------------------------------------
 Assets
 Cash and due from banks                           $   181,931     $    396,077
 Investment in bank subsidiaries,
      eliminated in consolidation                   44,675,976       37,397,800
 Securities available for sale                         253,345          182,125
 Furniture and equipment                             2,401,815        1,794,607
 Other assets                                           77,014          283,290
- --------------------------------------------------------------------------------
       Total assets                                $47,590,081     $ 40,053,899
================================================================================

 Liabilities and Shareholders' Equity
 Short-term borrowings                             $ 1,000,000     $          -
 Long-term borrowings                                1,900,000                -
 Other liabilities                                     402,734          280,698
- --------------------------------------------------------------------------------
      Total liabilities                              3,302,734          280,698
- --------------------------------------------------------------------------------

 Common stock, $2.50 par value, authorized
     5,000,000 shares; issued 1,780,780 shares,      4,451,950        4,451,950
 Capital surplus                                     8,256,901        8,256,901
 Retained earnings                                  30,803,543       26,765,097
 Less cost of shares acquired for the treasury
     2001 - 26,470 shares; 2000 - 25,670 shares       (532,479)        (517,725)
  Accumulated other comprehensive income             1,307,432          816,978
- --------------------------------------------------------------------------------
     Total shareholders' equity                     44,287,347       39,773,201
- --------------------------------------------------------------------------------

       Total liabilities and shareholders' equity  $47,590,081     $ 40,053,899
================================================================================

 Statements of Income
- --------------------------------------------------------------------------------------------
                                                        2001          2000          1999
- --------------------------------------------------------------------------------------------
                                                                       
 Income
 Dividends from bank subsidiaries                   $ 2,300,000   $ 7,220,000   $ 4,240,000
 Other dividends and interest income                     14,327        27,671        28,265
 Management and service fees from bank subsidiaries   2,268,600     1,387,150       548,317
- --------------------------------------------------------------------------------------------
         Total income                                 4,582,927     8,634,821     4,816,582
- --------------------------------------------------------------------------------------------
 Expense
 Interest expense                                        79,064         2,736        51,431
 Operating expenses                                   2,646,600     1,850,362       794,692
- --------------------------------------------------------------------------------------------
         Total expenses                               2,725,664     1,853,098       846,123
- --------------------------------------------------------------------------------------------
 Income before income taxes and equity in
     undistributed income of bank subsidiaries        1,857,263     6,781,723     3,970,459
 Income tax (benefit)                                  (175,900)     (167,845)      (99,600)
- --------------------------------------------------------------------------------------------
 Income before equity in undistributed income
     of bank subsidiaries                             2,033,163     6,949,568     4,070,059
 Equity in (distributed) undistributed
      income of bank subsidiaries                     3,233,299    (3,699,649)   (1,026,930)
- --------------------------------------------------------------------------------------------
             Net income                             $ 5,266,462   $ 3,249,919   $ 3,043,129
============================================================================================

                                       34

 Statements of Cash Flows
- ---------------------------------------------------------------------------------------------------
                                                             2001           2000          1999
- ---------------------------------------------------------------------------------------------------
                                                                              
 CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                            $ 5,266,462   $ 3,249,919   $ 3,043,129
     Adjustments to reconcile net earnings to
        net cash provided by operating activities:
        Equity in (undistributed) distributed net income of
            bank subsidiaries                               (3,233,299)    3,699,649     1,026,930
        Deferred tax expense                                    34,600        19,055             -
        Depreciation                                           269,083       121,693        48,913
        (Increase) decrease in other assets                    169,034        59,231      (213,783)
        Increase (decrease) in other liabilities               122,035       248,919        31,779
- ---------------------------------------------------------------------------------------------------
             Net cash provided by operating activities       2,627,915     7,398,466     3,936,968
- ---------------------------------------------------------------------------------------------------

 CASH FLOWS FROM INVESTING ACTIVITIES
     Investment in Shenandoah Valley National Bank          (3,000,000)   (2,500,000)   (4,000,000)
     Investment in Capital State Bank, Inc.                   (600,000)            -             -
     Proceeds from sales of  premises and equipment             14,807             -        62,870
     Purchases of furniture and equipment                     (891,098)   (1,704,282)     (197,835)
     Purchase of life insurance contracts                      (23,000)            -             -
- ---------------------------------------------------------------------------------------------------
             Net cash (used in) investing activities        (4,499,291)   (4,204,282)   (4,134,965)
- ---------------------------------------------------------------------------------------------------

 CASH FLOWS FROM FINANCING ACTIVITIES
     Dividends paid to shareholders                         (1,228,016)   (1,054,996)     (831,727)
     Purchases of fractional shares                                  -        (4,846)            -
     Payments to dissenting shareholders                             -      (799,095)            -
     Purchase of treasury stock                                (14,754)     (133,001)            -
     Net increase in short-term borrowings                   1,000,000             -             -
     Proceeds from long-term borrowings                      1,900,000             -     1,000,000
     Repayment of long-term borrowings                               -    (1,000,000)            -
- ---------------------------------------------------------------------------------------------------
             Net cash provided by (used in)
                financing activities                         1,657,230    (2,991,938)      168,273
- ---------------------------------------------------------------------------------------------------
         Increase (decrease) in cash                          (214,146)      202,246       (29,724)
     Cash:
         Beginning                                             396,077       193,831       223,555
- ---------------------------------------------------------------------------------------------------
         Ending                                            $   181,931   $   396,077   $   193,831
===================================================================================================

 SUPPLEMENTAL DISCLOSURES OF CASH
     FLOW INFORMATION
     Cash payments for:
         Interest                                          $    75,038   $     2,736   $    40,333
===================================================================================================

  SUPPLEMENTAL SCHEDULE OF NONCASH
      FINANCING ACTIVITIES
     Issuance of 183,465 shares of Company common
         stock in connection with acquisition of Capital
         State Bank, Inc.                                  $         -   $         -   $ 7,980,728
===================================================================================================

     Long-term borrowings transferred to bank subsidiary   $         -   $         -   $ 2,797,626
===================================================================================================

                                       35

                                                                     EXHIBIT 21

                           SUBSIDIARIES OF REGISTRANT

The following lists the  subsidiaries of Summit  Financial  Group,  Inc., a West
Virginia Corporation.

         South Branch Valley National Bank, a national banking association
                  organized under the laws of the United States of America

         Capital State Bank, Inc., a state banking association
                  organized under the laws of the State of West Virginia

         Shenandoah Valley National Bank, a national banking association
                  organized under the laws of the United States of America

         Potomac  Valley Bank, a state banking association
                  organized under the laws of the State of West Virginia

                                                                     EXHIBIT 23

                        CONSENT OF INDEPENDENT AUDITORS

Securities and Exchange Commission
Washington, D.C.

We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of our report dated February 8, 2002, on our audits of the
consolidated financial statements of Summit Financial Group, Inc. as of December
31, 2001 and 2000 and for each of the three years in the period ended December
31, 2001, included in Summit's 2001 Annual Report.

                                               ARNETT & FOSTER,  P.L.L.C.

                                               /s/ Arnett & Foster, P.L.L.C.

Charleston, West Virginia
March 28, 2002